Telkom mobile surges – but troubled BCX weighs on earnings

Telkom on Tuesday reported results for the six months ended September 2018, with operating revenue up 5.2% to R20.8 billion.

Reported headline earnings per share (HEPS) decreased 3.3% to 288.0 cents per share, mainly due to voluntary early retirement package (VERP) and voluntary severance package (VSP) costs in the current period of R282 million, and the related tax impact of R80 million.

The underlying performance also improved, it said.

Adjusted HEPS, excluding the impact of VERP and VSP costs, increased by 10.3% to 328.6 cents.

Basic earnings per share increased 1.8% to 316.6 cents benefitting from EBITDA growth.

Group chief executive officer, Sipho Maseko, said Telkom delivered a satisfactory performance as its investment strategy bears fruit.

“This is despite a challenging operating environment, where the country slipped into a technical recession while the consumer remained under pressure from increases in VAT, fuel prices and a weaker currency.”

Key salient features:

  • EBITDA up 2.9% to R5.3 billion
  • Capex of R3.3 billion with capex to revenue ratio of 15.7%
  • Free cash flow up 118.6% to R179 billion
  • Interim dividend of 112 cents, down 5.1% from 118 cents

Telkom said that its mobile business was a growth driver with service revenue growth of 53.8% to R3.6 billion supported by strong customer growth of 50.0% to 6.5 million, with a blended average revenue per user (ARPU) of R104, “as our affordable data-led products and broadband product propositions continue to resonate well with our customers”.

The accelerated performance was underpinned by increased capital expenditure and increased store footprint, the group said.

Openserve and Gyro also contributed positively to the group. Openserve marginally increased its revenue, despite the decline in traditional revenue, while Gyro continued to grow external revenue and the mast and tower portfolio tenancy ratio, it said.

“Notwithstanding the satisfactory performance, we felt the negative impact of the weak economic environment on our enterprise business as BCX, which serves all sectors of the economy, continues to be under pressure due to the tough economic environment,” said Maseko.

BCX revenue declined 4.3% to R10.22 billion, mainly attributable to the decline in voice revenue which was down 11.9%.

“In addition to the weak economy, BCX’s performance continues to be impacted by the decline in voice revenue. While fixed voice revenue declined by 12.4 percent and fixed data revenue was flat due to the accelerated decline in traditional products, I am pleased that the new revenue streams are compensating for the decline in our traditional revenue streams albeit at a lower margin.

“The declining traditional revenue is at a higher margin than the new revenue streams and our focus is to stimulate data traffic growth to preserve the overall margin. Our ongoing investment in new revenue streams has enabled the group to grow revenue in evolving technology, offsetting the shrinkage in traditional revenue,” the chief executive said.

Earlier this month, BCX staff were informed by the company’s CEO Jonas Bogoshi that the company has started a “section 189 process” – which refers to the retrenchment of staff due to operational requirements. The process is said to affect approximately 790 employees.

Looking ahead, Maseko said that mobile and fibre remain key capex focus areas with impressive returns in mobile service revenue.

“The investment in fibre to the home was rationalised in the period as we continue to focus on  areas which show a propensity for higher connectivity rates. Our fibre to the home connectivity rate has improved to 35.6% when compared to 24.5% in the prior year.

“We expect our capex to revenue ratio to be at the top end of our guidance by the end of the financial year, as we continue to invest in our new revenue streams. Our core and backhaul networks are largely modernised, and we are completing the upgrade  of our access network with multiple technologies as customers become more technology agnostic.”

He said that investment in new technologies to drive future revenue streams necessitates the evolution of the company’s skills base and the acquisition of various capabilities within the organisation.

“We continue working on understanding the leadership and operational capability sets required to drive performance. This may include the reorganisation of functions, identification of skill gaps and, in certain instances, possible redundancies.

“Where we have identified gaps, we continue to be deliberate about the process to close out and generate value, while creating the necessary diversity among our teams,” Maseko said.


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