Telkom reports strong mobile growth as it targets fibre to the home

Telkom on Wednesday (10 November), assured investors that it weathered the ‘Covid-19 storm’ and completed the first half of the year with improved profitability, strong liquidity and a strengthened balance sheet.

Headline earnings per share (HEPS) increased by 25.4% to 219 cents per share for the six months ended September 2020, while basic earnings per share (BEPS) increased by 29.5% to 217.5 cents per share compared to the prior period.

HEPS growth driven by higher operating profit before tax, it said, which was up 18.8%  as a result of a 6.3% growth in group EBITDA. This was partially offset by an increase in the effective tax rate from 29.9% in the prior period to 34.8%, Telkom said.

Mobile data revenue surged 53.8% driven by 80.8% growth in mobile traffic, the company said, with mobile EBITDA up 142.0% to nearly R3 billion.

Telkom said its mobile customer base increased by 19.0% to 13.7 million. Blended average revenue per user (ARPU) increased by 36.7% to a historic high of R113, mainly due to unprecedented data demand induced by Covid-19.

Pre-paid customers grew 17.9% to 11.1 million with pre-paid ARPU increasing by 36.3% to R84. The post-paid customer Productive capital base increased 24.1% to 2.6 million with ARPU increasing by 18.6% to R211.

“The mobile business performed exceptionally well, despite the national lockdown negatively impacting distribution channels,” said Sipho Maseko, group chief executive office at Telkom.

Service revenue climbed 47.8% to R8.28 billion, “placing us solidly as the third largest mobile operator in South Africa”, the chief executive said. “Our mobile broadband strategy continued to pay off and benefited from the increased data demand due to people working from home during the pandemic with mobile data revenue increasing by 53.8%.

“The ongoing investment in our mobile network and the temporary spectrum assignment enabled our mobile business to support the 80.8% increase in broadband traffic.”

Openserve saw an increase in demand for fixed connectivity resulting in an improved fibre to the home (FTTH) connectivity rate from 43.6% in the prior period to 53.8%, the highest connectivity rate in the market, said Maseko.

The lockdown had a negative impact on Enterprise fixed voice volumes and impacted Openserve negatively. Consequently, Openserve’s revenue declined by 13.6% compared to the prior period, driven by fixed voice revenue, the company said.

Telkom’s business units were impacted in different ways by the pandemic in the first half of the year. The Consumer business benefited from the increased demand from people working from home, while BCX and SMB (known as Yep!) were negatively impacted by the national lockdown, as corporate customers were under severe financial pressure.

Overall,  group revenue was down a fraction (0.4%).

Maseko noted that enterprise customers reduced information technology (IT) spend in the first half of the year and postponed some of their capital investment projects as a response to the heightened uncertainty caused by Covid-19. This resulted in BCX IT business revenue declining by 8.6%.

Gyro masts and towers continued to commercialise its current masts and towers portfolio in the period, with revenue increasing by 7.7% to R628 million despite the slowdown in the permitting and construction process due to the national lockdown,” he said.

Looking ahead, Maseko said that in the second half of the year, management will continue to build financial resilience in the face of a tough trading environment, focusing on a number of levers; sustainable cost management, cash preservation, disciplined capital allocation and mitigating financial risks.

“The sustainable cost management programme will continue as a lever to protect group EBITDA and margin with continued focus on both direct and operational costs. We expect the remaining benefits of phase one of the restructuring programme to be realised in the second half of the year and phase two of the restructuring program is already in progress in BCX.”

The chief executive said that Telkom is on track to realise a targeted cost savings of R1 billion to R2 billion for the full year.

“We will continue to invest in our Mobile business to support the mobile growth,” Maseko said.

Read: Telkom ‘solidly’ third biggest mobile operator in South Africa