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Annual results for the year ended 31 March 2020
Telkom SA SOC Ltd
(Registration Number 1991/005476/30)
JSE share code: TKG
JSE bond code: BITEL
ISIN: ZAE000044897
("Telkom" or "the company")
Annual Results for the year ended 31 March 2020
Key highlights
- Strong mobile service revenue increase of 54.4% driving growth
- Customer base up 23.9% to 12 million with net additions of 1.9 million
- FTTH connectivity rate up 48.2% highest in the market
- FCF improved threefold to R2.0 billion
- Strengthened balance sheet with net debt EBITDA less than 1x excluding IFRS 16 and once-off items
Telkom operates in a constantly evolving environment where advances in technology and changing customer
needs are impacting traditional revenue streams and requiring the business to transform for long-term growth.
Our group performance depicts the evolution of technology and revenue mix. Notwithstanding the decline in our
fixed business that impacted EBITDA, Telkom delivered solid performance with the mobile business driving growth.
FCF improved threefold and our balance sheet strengthened.
COVID-19 impact
This year was characterised by a tough economic environment where we saw our country slipping into a
technical recession and being massively impacted by the global pandemic COVID-19. This year also concludes a
challenging decade of depressed economic growth, currency volatility, technology disruption, increasing
competition and regulatory uncertainty - none of which Telkom has been spared from.
COVID-19 impacted the last two weeks of FY2020. In line with the JSE and SAICA guidance, COVID-19 has been
concluded as an adjusting post balance sheet event for companies with a year end of 31 March 2020. IFRS 9
requires that the impairment of trade receivables and contract assets be based on expected credit loss (ECL)
principles, which require us to take a forward-looking view of a macro-economic impact on debtors' behaviour.
Telkom took a prudent approach in line with the ECL principles and recognised a total provision of R1.1 billion
in this financial year relating to the impairment of trade receivables and contract assets, of which R626 million
is due to the expected impact of COVID-19. This negatively impacted our results for FY2020. Notwithstanding
the expected economic challenges as a result of COVID-19, Telkom has not seen a deterioration in its debtor's
book performance from March 2020 to May 2020.
Group performance
Our group performance depicts the evolution of technologies and revenue mix. Group revenue grew 3.0% to
R43.0 billion despite a 22.2% decline in fixed voice revenue. The ongoing capex investment enabled Telkom to
grow new revenue streams and showed growth in evolving technology, offsetting the traditional business decline.
Mobile, information technology (IT) and masts and towers contributed positively to group revenue. Capex of
R7.8 billion, with capex to revenue of 18.0%, underpins revenue growth. We focused our investment programmes
on key growth areas and we are seeing good returns, with mobile service revenue increasing by 54.4% and the
connectivity rate for fibre to the home (FTTH) improving from 38.4% in the prior year to 48.2% in the current
year - the highest in the market.
The mobile business grew 54.4% in service revenue from a higher base to R12.6 billion to remain the fastest
growing mobile business in South Africa with 12 million customers. This was underpinned by our ongoing network
investment and successful broadband-led propositions, which continue to resonate well with customers. Despite
ongoing competitive threats with changes implemented by our competitors in the mobile space, our
broadband-led propositions are market leading, being best in class for value and effective pricing. The mobile
business remains profitable, with its EBITDA margin improving from 1.4% to 14.9%*** over the past three years.
On a reported basis, the mobile EBITDA margin for the year ended 31 March 2020 is 18.6%.
The BCX IT business contributed positively to group revenue, despite the challenging economic environment
BCX operates in. The performance was supported by the drive to grow the industry-specific owned intellectual
property.
The strategy to separate our property and mast and tower portfolio to increase management focus and unlock
value for the group continues to be successful. Gyro contributed positively to the group revenue, driven by our
mast and tower portfolio as the demand for external leases increases.
Our challenge for the year was the impact of the fixed voice revenue on group EBITDA as the decline
intensified. The growth in new revenue streams was not sufficient to offset the decline caused by high margin
fixed voice on group EBITDA. Over time, as the revenue mix evolves, we expect the contribution from the fixed
voice revenue to reduce and the contribution from the mobile business, with improved EBITDA to increase and
offset the impact of fixed voice on group EBITDA. Until the inflection point, management will focus on
sustainable cost management to protect the profitability of the business.
In line with this technology shift, the business requires a new skill set to respond to customer needs.
Telkom offered Telkom offered voluntary early retirement packages (VERP) and voluntary severance packages (VSP)
to 2 271 employees at a cost of R1 186 million in the current year. 75% of these employees took early retirement
packages. There were no retrenchments in the current year.
To mitigate the pressure on free cash flow (FCF), Telkom implemented working capital optimisation
initiatives. We are pleased that, despite the margin pressure experienced, our FCF improved threefold to
R2.0 billion compared to the previous year. We will continue to focus on Telkom's liquidity during this tough
trading environment.
During the year we strengthened our balance sheet, refinancing debt at a cheaper rate and repaying maturing
debt totalling R1.2 billion. As a result, our gearing improved in the second half of the year, with net debt
to EBITDA reducing to 0.7x* (1.3x on a reported basis). The net debt to EBITDA ratio was also positively
impacted by the liquidation of the short-term investment of R1.5 billion to fund phase one of the restructuring
programme and a significant improvement of approximately R1.4 billion in our FCF compared to the prior year.
Group EBITDA impacted by the decline in fixed voice business
On a pro forma International Accounting Standard (IAS) 17 basis, group EBITDA decreased by 8.7%* to
R10 330 million*, with an EBITDA margin of 24.0%*. This is attributable to the change in the revenue mix as
high margin fixed business is replaced by new revenue streams at lower margins. Notwithstanding the impact of
fixed voice revenue on group EBITDA, management contained the growth in operating expenses at below inflation
as the benefits of the headcount restructuring programme implemented in the previous year were realised,
despite an average annual salary increase of 6% implemented on 1 April 2019. Direct expenses relating to our
mobile business were optimised from 52.6% direct cost to revenue ratio reported in the first half to 44.3% in
the second half of the year, resulting in improved mobile business profitablity.
Group HEPS mainly impacted by once-off items
Reported HEPS decreased 66.4% to 208.1 cents per share and reported BEPS decreased 78.4% to 121.1 cents per
share impacted by once off costs relating to VSP and VERP costs, COVID-19 and a higher effective tax rate.
On a pro forma IAS 17 basis, HEPS decreased 30.2% to 504.6 cents and BEPS decreased 37.2% to 417.7 cents
impacted by lower EBITDA as a result of the impact of the decline in fixed voice as well as the increase in
finance charges and fair value movements.
Declaration of dividend
Our current dividend policy is to pay an annual dividend of 60% of headline earnings with an interim
dividend of 40% of interim headline earnings. In line with our dividend policy, the board declared a final
ordinary dividend number 26 of 50.08410 cents per share. This follows an interim dividend of 71.52636 cents
per share in the interim results. This takes the annual dividend for FY2020 to 121.61046 cents per share
(FY2019: 361.54461 cents per share).
The declared dividend is payable on Monday, 13 July 2020 to shareholders recorded in the register of the
company at close of business on Friday, 10 July 2020. The dividend will be subject to a local dividend
withholding tax rate of 20%, which will result in a net final dividend of 40.06728 cents per ordinary share
to those shareholders not exempt from paying dividend withholding tax. The ordinary dividend will be paid out
of available cash balances.
The number of ordinary shares in issue at the date of this declaration is 511 140 239. Telkom SA SOC Ltd's
tax reference number is 9/414/001/710.
Salient dates with regard to the ordinary final dividend
Declaration date Monday, 22 June 2020
Last date to trade cum dividend Tuesday, 7 July 2020
Shares trade ex-dividend Wednesday, 8 July 2020
Record date Friday, 10 July 2020
Payment date Monday, 13 July 2020
Share certificates may not be dematerialised or rematerialised between Wednesday, 8 July 2020 and
Friday, 10 July 2020, both days inclusive.
On Monday, 13 July 2020, dividends due to holders of certificated securities on the South African register
will be transferred electronically to shareholders' bank accounts.
Dividends in respect of dematerialised shareholders will be credited to shareholders' accounts with their
relevant central securities depository participant or broker.
Suspension of the dividend policy
Telkom indicated in the first half of the year that it will review the dividend policy, and in considering
the new dividend policy Telkom will prioritise its capital investment programme, maintain a healthy balance
sheet and consider its cash position within its capital allocation framework. The imminent spectrum auction
will require a substantial amount of capital and it is of strategic importance for Telkom to participate to
ensure the sustainability of the mobile business. Preserving cash and maintaining a flexible balance sheet have
become of critical importance and urgent during the COVID-19 pandemic as the economy is under strain.
Given all these factors that are expected to impact Telkom, the board found it prudent to suspend the
dividend policy for the next three years from FY2021. Over the next three years, the capital will be redirected
to the acquisition of spectrum and to complete the key capex programme to ensure the sustainability of our
business.
Withdrawal of market guidance
The lockdown response to the COVID-19 pandemic is expected to impact the South African economy
significantly, but quantifying the likely magnitude of this unprecedented crisis is challenging. Against the
backdrop of both exceptional economic weakness and heightened uncertainty, it will be difficult to maintain our
medium-term targets. The board found it prudent to withdraw our medium-term targets in FY2021 to allow
sufficient time to fully understand and quantify the impact of COVID-19 on the Telkom Group.
Outlook
During this time of uncertainty, management will relentlessly focus on cost savings through its sustainable
cost management programme, which includes the restructuring programme and other cost levers to protect the
profitability of the business. The full benefits of the two-phase restructuring programme are expected to flow
in over the next 12 to 24 months. Management will continue to exercise discipline in allocating capex, making
sure that we invest in projects that give us reasonable returns. We are cognisant that COVID-19 may have a
negative impact on our business. Therefore, we will continuously assess the capex spend in line with revenue
forecasts. Management will continue to focus on cash release initiatives through optimisation of working capital
to ensure that we generate positive FCF.
Sello Moloko
Chairman
Sipho Maseko
Group chief executive officer
Tsholofelo Molefe
Group chief financial officer
Pro forma financial information
All commentary, messaging and indicators in the report for the year ended 31 March 2020 are presented on an
IAS 17 basis for comparative purposes and exclude VSP and VERP costs of R1 186 million and the related tax
impact of R332 million, and the additional impairment of financial assets as a result of COVID-19 of R626 million
and the related tax impact of R175 million. FY2019 excludes VSP, VERP and section 189 costs of R728 million and
the related tax impact of R215 million.
March 2020
IAS 17 Impact
(previous IFRS 16
Category standard) (new standard)
Balance Lease Recognise right R4.5 billion
sheet smoothing of use of asset
receivable/ Recognise lease R4.8 billion
payable liability
Income Operating lease Reduced operating
statement on straight- lease (higher
line basis in EBITDA) R1 084 million
operating Depreciation on
expenses right-of-use asset (R954 million)
Interest expense on
lease liabilities (R368 million)
Profit after tax (PAT) (R171 million)
HEPS (34.4 cents)
Cash flow Lease payment Lease payment Reclassification
in operating in financing on cash flow
activities activities statement
Net debt/ Operating lease Higher EBITDA Increase by
EBITDA payment in Higher net debt 0.4x to 1.3x
EBITDA
Reported Pro forma Pro
IFRS 16 IAS 17* forma*
March 2020 March 2020 March 2019
Financial information Rm Rm Rm Variance**
summary %
Revenue 43 043 43 043 41 774 3.0
EBITDA 9 602 10 330 11 309 (8.7)
EBITDA margin (%) 22.3 24.0 27.1 -
Capex 7 755 7 755 7 674 1.1
FCF 1 782 1 957 534 266.5
Net debt 12 054 7 279 8 813 17.4
BEPS (cents) 121.1 417.7 665.1 37.2
HEPS (cents) 208.1 504.6 722.4 (30.2)
Net debt to EBITDA (times) 1.3 0.7 0.8 0.1
Final dividend (cents) 50 50 249 (79.9)
* Based on information for the current and prior years, as well as pro forma information for comparative
purposes as defined on pages 5-7 in the Telkom SA SOC Ltd Abridged Annual Results for the year ended
31 March 2020.
** Pro forma IAS 17 March 2020 vs pro forma March 2019.
*** Excludes the impact of IFRS 16 and the additional impairment of trade receivables and contract assets
as a result of COVID-19.
Pro forma financial information: Certain information presented in this results announcement was prepared
excluding the impact of the adoption of IFRS 16 (Leases), the additional impairment of financial assets as
a result of COVID-19, VERP, VSP costs in the current period, and voluntary early retirement package (VERP),
voluntary severance package (VSP), and section 189 costs in the comparative period and the related tax impact
on results and free cash flow (the "pro forma adjustments"). This constitutes pro forma financial information
to the extent that it is not extracted from the segment disclosure included in the Telkom audited consolidated
abridged financial statements for the year ended 31 March 2020. This pro forma financial information has been
presented to eliminate the impact of the pro forma adjustments from the consolidated financial results for the
year ended 31 March 2020 to achieve a comparable period-on-period analysis and show the underlying performance
of the business. The pro forma adjustments have been determined in terms of the group accounting policies
disclosed in the audited consolidated abridged financial statements for the year ended 31 March 2020, except
for the changes in accounting policies as a result of the adoption of the accounting pronouncements effective
1 January 2019. Due to its nature, the pro forma financial information is for illustrative purposes only and
may not fairly present Telkom's financial position, changes in equity, results of operations or cash flows.
The short-form announcement is the responsibility of the directors.
Further information: The Telkom audited consolidated abridged financial statements for the year ended
31 March 2020 contained in the Telkom SA SOC Limited Group Abridged Annual Results for the year ended
31 March 2020 are prepared in accordance with the requirements of the JSE Limited Listings Requirements for
abridged reports, and the requirements of the Companies Act applicable to summary financial statements. The
Listings Requirements require abridged reports to be prepared in accordance with the framework concepts and
the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the
SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements
as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information
required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of the
Telkom annual financial statements for the year ended 31 March 2020 from which the Telkom audited consolidated
abridged financial statements for the year ended 31 March 2020 were derived are in terms of IFRS and are
consistent with those accounting policies applied in the preparation of the previous consolidated annual
financial statements. The short-form announcement is only a summary of the information in the Telkom annual
financial statements for the year ended 31 March 2020 and does not contain full or complete details.
This announcement does not include the information required pursuant to paragraph 16A(j) of IAS 34. Telkom
SA SOC Ltd Group Abridged Annual Results for the year ended 31 March 2020 is available on the issuer's website,
at the issuer's offices and upon request. The directors take full responsibility and confirm that this
information has been correctly extracted from the underlying report.
This announcement is itself not audited but is extracted from the underlying audited information.
The Telkom audited consolidated abridged financial statements for the year ended 31 March 2020 contained in
the Telkom SA SOC Ltd Group Abridged Annual Results for the year ended 31 March 2020 have been audited by
PricewaterhouseCoopers Inc. and SizweNtsalubaGobodo Grant Thornton Inc., who expressed an unmodified opinion
thereon. The auditor also expressed an unmodified opinion on the annual financial statements from which the
Telkom audited consolidated abridged financial statements for the year ended 31 March 2020 were derived.
A copy of the auditor's report on the Telkom audited consolidated abridged financial statements for the year
ended 31 March 2020 and of the auditor's report on the Telkom annual financial statements for the year ended
31 March 2020 are available for inspection at the company's registered office, together with the financial
statements identified in the respective auditor's reports, which sets out key audit matters and the basis for
its unmodified opinion is available at: www.telkom.co.za/ir/financial/ financial-results-2020.shtml.
The pro forma financial information in the Group Abridged Annual Results for the year ended 31 March 2020
has been reviewed by the group's joint independent external auditors and should be read in conjunction with
that document.
Any investment decisions should be based on the Telkom annual financial statements for the
year ended 31 March 2020 published on the JSE's website on Monday, 22 June 2020 and also available on
Telkom's website at: www.telkom.co.za/ir.
The Telkom annual financial statements for the year ended 31 March 2020 are available on the company's
website at: https://www.telkom.co.za/ir/financial/financial-results-2020.shtml and on the JSE's website at:
https://senspdf.jse.co.za/documents/2020/jse/isse/TKG/ye2020.pdf
The Telkom annual financial statements for the year ended 31 March 2020 is furthermore available for
inspection at the company's registered address and the offices of the JSE sponsor (Nedbank CIB) during office
hours at no charge to shareholders.
Copies of the Telkom annual financial statements for the year ended 31 March 2020 may be requested
including full details on how such request can be made.
The distribution of the Telkom annual financial statements for the year ended 31 March 2020 as well as the
notice of AGM will follow and will be announced on SENS.
Transfer secretaries are Computershare and they are contactable on +27 11 370 5000.
www.telkom.co.za
22 June 2020
Equity & Debt Sponsor
Nedbank Corporate and Investment Banking
Date: 22-06-2020 07:30:00
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