Wrap Text
Group Interim Results for the six months ended 30 September 2023
Telkom SA SOC Ltd
(Registration number: 1991/005476/30)
JSE share code: TKG
JSE bond code: BITEL
ISIN: ZAE000044897 (Telkom, the Company or the Group)
Group Interim Results for the six months ended 30 September 2023
Highlights
- Revenue1 up 2.5% to R21 778 million
- Next-generation revenue up 8.1% to R17 234 million
- EBITDA1,5 up 1.7% with EBITDA margin1,5 at 23.1%
- HEPS1,2,5 up 46.7% to 195.0 cents per share
- BEPS1 up 52.1% to 200.2 cents per share
- FCF3,5 up 130.4% to R573 million
- Mobile service revenue up 5.8% to R9 293 million
Telkom delivered solid earnings growth despite a tough trading environment. The first
half of the year saw the economy struggle to grow with a high inflationary environment,
propelling the highest interest rate levels South Africa has experienced in 14 years.
Group performance was pleasing despite these challenges. We focused on driving top-line
growth and cost-reduction initiatives to offset inflationary cost pressures and the added
cost of loadshedding.
Telkom saw good growth in mobile service revenue driven by value-compelling propositions.
We also sustained the growth trajectory in the fibre business from monetising fibre rollouts,
as well as good growth of the IT business driven by increased demand for hardware and software
by enterprise customers. The Group also continued to manage the migration to newer technologies
as legacy and fixed voice revenues reduced as expected, and will continue to do so in the coming
12 to 18 months.
Telkom remains resolute in executing its strategic goals. We are proud to have made good progress
on the Value Unlock programme. We have prioritised concluding the disposal of the masts and towers
business while positioning the Telkom of Tomorrow as a leading Infrastructure Company (InfraCo).
We are committed to facilitating a seamless management transition with the appointment of our new
Group Chief Financial Officer and Chief Capital Projects Officer to focus on driving capital
efficiency and realising optimal returns for Telkom InfraCo.
Performance overview
Notwithstanding the challenging operating environment that persisted in the first half of FY2024,
Telkom delivered solid earnings, with HEPS1,2,5 and basic EPS1 increasing 46.7% and 52.1%,
respectively. Profit for the period was boosted by lower depreciation charges and growth in EBITDA,
while higher interest rates materially increased net finance costs compared to the comparative period.
Group revenue1 advanced by 2.5% to R21 778 million, driven by growth in mobile traffic, the monetisation
of the rollout of our fibre infrastructure and growth of the IT business. Our cost-reduction initiatives
bore fruit, partially offset inflationary increases and resulted in operating expenses1 increasing by
below inflation at 2.4%. Despite this increase, Group EBITDA1,5 grew by 1.7% to R5 025 million limited
by higher bad debt provisions.
Openserve continued its journey to transform its technology, revenue, and channel mix, yielding a
pleasing 6.9% increase in next-generation revenue to R4 526 million. In comparison, total operating
revenue declined by 2.7% for the period as legacy revenue declines impacted performance. Strong growth
in next-generation revenue was due to the growth in fixed data revenue, which increased by 9.1%,
underpinned by significant growth in high-speed fibre broadband connectivity and a steady increase across
carrier services and enterprise connectivity. As the ever-increasing demand for data continued, we saw a
17.6% increase in fixed data traffic to 1 081 petabytes and are well positioned to provide a differentiated
customer experience through additional capacity and diversity through our partnership with Google as its
cable landing partner in South Africa and offer terrestrial services across the country. Openserve
continued to drive market leadership with the highest fibre connectivity rate of 46.8% in the market,
underpinned by a 22.4% increase of homes connected to 542 598 while homes passed grew by 20.6% to 1 158 761.
The introduction of a sustainable energy mix coupled with improved efficiencies through an optimised
headcount and exchange portfolios resulted in an increased EBITDA margin to 31.8%, despite higher operating
costs caused by loadshedding.
Revenue for Telkom Consumer grew by 1.4%, driven by the value-compelling propositions of Mobile operations.
Total external revenue from Mobile operations grew by 4.1% to R11 035 million, driven by 5.8% growth in
mobile service revenue as the demand for data surged by 22.9% to 676 petabytes for the period.
Our subscriber base now stands at 18.3 million with a blended average revenue per user (ARPU) of R85. Our
pre-paid customer base expanded by 1.0% to reach 15.3 million with an ARPU of R64, while the post-paid
segment grew by 3.6%, reaching 3.0 million with an ARPU of R182. We continued to divest and manage the
transition from legacy to next-generation technologies, with copper-based voice services now constituting
a mere 4.5% of revenue, a decrease from the previous year's 6.2%.
The mobile broadband subscriber base increased by 10.5% to 12.2 million driven by the expansion of our
LTE increasingly preferred offerings of affordable entry-level LTE pre-paid bundles and unlimited LTE
post-paid offerings. Wireless broadband users now make up 66.7% of the total mobile base.
BCX continued focusing on improving the quality of its revenue mix by accelerating IT services revenue
while managing the migration to next-generation technologies. Revenue increased by 0.7% to R7 043 million,
primarily due to the double-digit growth in the IT business, partially offset by legacy declines in the
Converged Communications business. The IT business revenue increased by 10.3% to R4 192 million, driven
by the strong performance of the hardware and software segment resulting from customers' renewals of
software contracts along with cleared prior year backlogs. While this growth provided BCX with access
to a broader client footprint, it came at lower margins and reduced overall profitability for the period.
Gyro's masts and towers business (Swiftnet) which is classified as held for sale (presented as a
discontinued operation) continued to commercialise, driven by additional tenancies on the existing
portfolio and ongoing equipment upgrades by mobile network operators in enhancing their capacity
and network, including deploying 5G. Eleven towers and one in-building solution site were constructed
during the first half of the year, growing the total productive towers to 4 008. Revenue from continuing
customers increased by 6.8% to R499 million, while total revenue was impacted by terminations and
marginally reduced by 1.2% to R652 million.
Gyro also focused on realising value and optimising its property portfolio along with Telkom's properties
through the accelerated disposal of decommissioned assets no longer required for operational purposes. We
concluded offers to purchase amounting to R305 million for 50 properties during the period. Execution of
energy projects also progressed through various interventions across all Telkom business units to ensure
the resilience and efficiency of Telkom's network and operations while contributing towards attaining our
ESG targets.
Strategy update
Telkom is embarking on a journey to transform and reorganise itself as an infrastructure company at its core.
This is intended to promote strategic growth through consolidating core assets to drive capital efficiency,
promote operational synergies to offset the impact of migrations to next-generation technologies and exploit
the right to win. This journey encompasses consolidating all of Telkom's infrastructure assets into the InfraCo,
going to market as One Telkom to harness synergies across the business while maintaining each business unit's
identity, and disposing of non-core assets. The journey to the Telkom of Tomorrow is anticipated to emerge over
12 to 18 months and be in full effect by the end of 2025. From here on, the focus will be to build from this
base, grow and scale the business sustainably, and realise optimal returns for the Group going forward.
Committed to realising value
The Board is committed to the Value Unlock Strategy premised on Telkom's market capitalisation not
representing the intrinsic value of its underlying assets. Value is realised by affirming the valuation of
underlying businesses and their contribution to the valuation of Telkom while ensuring long-term sustainable
growth for the Group. While the Board has approved an outright sale of the masts and towers business, other
business units were investigated for minority and majority strategic equity partnerships to realise value and
at the same time securing benefits from future capabilities and/or scale enhancements from potential strategic
partnerships. The following progress was made in these areas during the period:
1) An official process was launched after the Telkom Board's approval for the outright sale of Swiftnet,
the masts and towers business. The disposal process is at its final stages and Telkom has entered into an
exclusivity period with a preferred bidder. As such, shareholders are advised to exercise caution, as
indicated in the SENS announcement released on 21 November 2023, when dealing in Telkom's securities until
a further announcement is made on the potential transaction. Accordingly, Swiftnet has been classified as
an 'Asset Held for Sale' in line with IFRS reporting requirements.
2) Telkom is focused on positioning itself as an infrastructure business at its core. Once the InfraCo
structure is in place and the masts and towers transition is concluded, Telkom will consider further
opportunities to realise value, including those in relation to the minority partnerships for Openserve
and a strategic equity partner for BCX.
Management transitions to drive Telkom of Tomorrow
The appointment of our incoming Group Chief Financial Officer (CFO), Ms Nonkululeko Dlamini, effective
01 December 2023, will ensure the continued execution of Telkom's reinvigorated strategy. Her skills in
capital projects, capital raising, cost management and strategy alignment are a strong fit for the
executive team. This will lead Telkom's strategic direction as an InfraCo.
Our current Group CFO, Dirk Reyneke, will assume the role of Chief Capital Projects Officer. His in-depth
knowledge of all Telkom business units positions him well for this strategic role focused on driving capital
efficiency, realising optimal returns for capital deployed, and sharing his expertise and experience with his
successor.
Group revenue supported by next-generation revenue growth
Group revenue1 increased by 2.5% to R21 778 million, driven by an increase in mobile data and fixed data
connectivity revenue of 10.3% and 6.4%, respectively, and a 26.2% increase in IT hardware and software
sales revenue. This was partially offset by a 23.2% decrease in fixed voice revenue due to the ongoing
migration to modern technologies such as fibre and LTE.
EBITDA5
Group EBITDA1,5 increased 1.7% to R5 025 million, with the EBITDA margin1,5 contracting 0.2 percentage
points (ppts) to 23.1% compared to the comparative period. The Group revenue1 increase of 2.5% was offset
by 2.4% higher operating expenditure1 (opex), a 10.6% increase in sales commission and incentives from
mobile and a 2.7% increase in the cost of handset, equipment and directories mainly attributable to the
26.2% increase in IT hardware and software revenue.
The opex increase is mainly attributable to a 77.8% increase in impairments of receivables1 due to tough
economic conditions, higher maintenance in line with the growth in mobile sites integrated, and accelerated
loadshedding, partially offset by a 7.1% decrease in employee expenses due to the 16.3% lower headcount and
no salary increases and performance incentives.
Mobile cost to serve deteriorated slightly by 0.3 ppts to 28.0% compared to 27.7% in the comparative period
but recovered from 28.4% recorded for the year ended 31 March 2023. The year-on-year increase in cost to
serve is driven by increased costs associated with the post-paid market, such as distribution channel costs.
This was mitigated by optimising roaming costs as we maintain stringent roaming traffic thresholds and
migrate traffic to our network.
FCF3,5 supported by improved working capital management
FCF3,5 excluding restructuring cost paid increased 130.4% to R573 million (H1 FY2023: negative R1 887 million),
primarily due to the 95.8% increase in cash generated from operations. This is mainly driven by the R872 million
working capital improvement due to efficient working capital management and the increase in profit before
taxation1 of 45.9% or R412 million compared to the prior period.
Regulatory and legal developments
Radio Frequency Spectrum
The Minister of Communications and Digital Technologies confirmed that the final analogue television
switch-off date in the frequency bands above 694 MHz would be 31 July 2023. The switch-off would make
available for use nationally the sub 1 GHz spectrum obtained by Telkom during the auction held in
March 2022. Following the switch off date, Telkom, along with other market participants, informed ICASA
that, although analogue broadcasting transmitters were switched off on 31 July 2023, interference was
still being experienced in some areas. ICASA committed to investigating the issue and to have the sub
1 GHz IMT bands cleared by 30 September 2023. ICASA has confirmed that the issues with interference have
now been resolved and that this spectrum should now be available nationally. Telkom has already deployed
the acquired spectrum in those areas unaffected by television services interference and should now be able
to deploy our spectrum anywhere in South Africa based on our commercial requirements. If further interference
is present, these will be resolved by the Authority in accordance with the standard interference resolution
processes. With the clearing of the sub 1 GHz (as confirmed by ICASA), the outstanding auction fees are
payable. ICASA has stated that these outstanding fees must be paid on or before 31 December 2023.
ICASA has also begun the process of licensing additional high demand spectrum and has stated that it aims
to conclude this process by 31 March 2024. Telkom has requested that ICASA postpone the second auction to
the next financial year (i.e. 2025), on the basis that studies still need to be completed by ICASA in
preparation for the next auction, and that the current challenging economic environment, including the
impact of loadshedding, will make it particularly difficult for Telkom and other market participants to
partake in the auction. ICASA has, to date, not responded to Telkom's request.
Electronic Communications Amendment Bill
The Department of Communications and Digital Technologies published the Electronic Communications Amendment Bill,
2022 (the Bill) on 23 June 2023. The Bill deals with several critical issues such as spectrum trading and sharing,
roaming, mobile virtual network operators, passive infrastructure, access to facilities, and competition. Telkom
filed a comprehensive submission on the Bill on the extended due date of 31 August 2023.
Outlook
In the first half of FY2024, we prioritised driving cash generation by harnessing opex savings, managing working
capital, and focused on capital expenditure for growth and maintaining the availability of our fixed and mobile
networks. All this was underpinned by refreshing our Company's culture and aligning senior leadership on the
Telkom of Tomorrow as we evolve into an InfraCo. While we saw positive momentum in the current period, the
increasingly challenging economic environment we operate in will continue to impact the performance across the
entire telecommunications industry as we manage loadshedding through prioritising alternative energy investments.
Despite the challenging macro-economic environment, our guidance* for FY2024 remains unchanged. Group revenue
and EBITDA are expected to grow at low to mid single digits as we focus on driving the top line and harnessing
cost savings to improve our profitability by FY2025. We will continue to invest in our infrastructure to facilitate
growth, with the capex-to-revenue ratio expected to be on the lower end of our 16% to 18% guidance for FY2024, in
line with our prudent approach to capex for the year.
* The guidance in this outlook has not been reviewed or reported on by Telkom external auditors.
Financial Restated
information September September
summary 2023 2022 Variance
Rm Rm %
Revenue1,5 21 778 21 238 2.5
EBITDA1,5 5 025 4 943 1.7
EBITDA margin (%)1,5 23.1 23.3 (0.2)
Capex4 3 143 3 689 (14.8)
FCF3,5 573 (1 887) 130.4
BEPS (cents)1 200.2 131.6 52.1
HEPS (cents)1,2,5 195.0 132.9 46.7
Net debt4,5 to EBITDA1,5 (times) 1.8 1.7 0.1
Interim dividend (cents) - - -
1 Presents the combination of the continuing and discontinued operations.
2 The HEPS comparative was restated by 4.3 cents per share.
3 FCF was adjusted to exclude R1 051 million restructuring cost paid. Including the restructuring cost,
FCF of negative R478 million was generated resulting in a 74.7% increase compared to the prior period.
4 Includes held-for-sale assets and liabilities.
5 This is a non-defined IFRS measure.
Mvuleni Geoffrey Qhena
Chairman
Serame Taukobong Group
Group Chief Executive Officer
Dirk Reyneke Group
Group Chief Financial Officer
21 November 2023
Sponsor
Nedbank Corporate and Investment Banking, a division of Nedbank Limited
Further information: The short-form interim financial results announcement is the responsibility of the Board of
Directors of Telkom. It is only a summary of the information contained in the long-form interim financial results
announcement and does not contain full or complete details.
Any investment decisions should be based on the long-form interim financial results announcement published on the
JSE's website on Tuesday, 21 November 2023 and also available on Telkom's website at https://group.telkom.co.za//ir/.
The long-form interim financial results announcement, which includes the PricewaterhouseCoopers Inc. unmodified review
report, is available on the Company's website at: https://www.telkom.co.za/ir/financial/financial-results-2024.shtml
and on the JSE's website at: https://senspdf.jse.co.za/documents/2023/jse/isse/TKG/ie2023.pdf
Copies of the Telkom interim financial statements for the period ended 30 September 2023 may be requested from
Karabelo Mosia at mosiakl@telkom.co.za
Transfer secretaries are Computershare and they are contactable on +27 11 370 5000.
www.telkom.co.za
Date: 21-11-2023 07:25:00
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