Wrap Text
Telkom SA SOC Limited
Registration number 1991/005476/30
JSE share code: TKG
JSE bond code: BITEL
ISIN: ZAE000044897
("Telkom" or the "Group")
Trading update for the quarter ended 31 December 2023
Q3 FY2024 HIGHLIGHTS
' Group revenue up 2.0% to R11 304 million
' Group EBITDA stable at R2 477 million
' Telkom Consumer growth driven by compelling value propositions
o Mobile revenue up 4.8% to R5 957 million
- Mobile service revenue up 7.1%
o Mobile EBITDA up 3.5% to R1 195 million
' Openserve fixed data next generation revenue growth at 6.2%
o EBITDA up 7.0% to R1 014 million
o Market-leading fibre-to-the-home ("FTTH") connectivity rate of 47.9%
' BCX revenue marginally down at 0.7%
o IT business revenue up 13.1% to R2 120 million
' Swiftnet revenue up 4.7% from additional tenancies on masts & towers portfolio
o Healthy EBITDA margin of 73.9%
Group Chief Executive Officer ' Serame Taukobong commented: Telkom made good progress in
the third quarter of the 2024 financial year ("the quarter") as it positions itself as the leading infrastructure
company at the heart of South Africa's digital future.
Group performance for the quarter was pleasing against a strong comparative quarter and Telkom
managed to grow the top line as compelling value propositions drove next generation ("NGN") revenue
growth and operating earnings, thereby affirming our data-led strategy. Our cost-reduction initiatives also
contributed to improved operating EBITDA as they partially offset inflationary increases, increased bad
debt provisions and the added cost of loadshedding. Telkom Consumer and Openserve made impressive
progress and advanced operating earnings by 20.6% and 7.0% respectively.
Overall Group EBITDA was stable, despite the impact of continuing inflationary pressures on retail
consumers and enterprises against a backdrop of muted economic growth in South Africa. Telkom
remains committed to meet its medium-term guidance for the 2024 financial year with a continued focus
on cash generation and stringent capital allocation with expected capital expenditure for the year better
than indicated guidance.
We continued prioritising our strategic imperative to unlock value through the proposed disposal of
Swiftnet, the masts & towers business. Substantial progress was made on meeting the remaining agreed
milestones under the exclusivity arrangement including, the parties significantly progressing their
negotiations to agree transaction agreements. We remain committed to progressing this transaction to
enhance shareholder value and focus management on core business competencies, while retaining use
of the infrastructure.
OPERATIONAL REVIEW
NGN driving revenue growth, cost reduction initiatives partially offset inflationary pressures
Group revenue increased by 2.0% to R11 304 million driven by compelling data-connectivity
propositions from our mobile and fixed networks. Higher recharges by prepaid Mobile subscribers,
ongoing rollout of fibre network to homes and enterprises by Openserve drove revenue growth, supported
by Swiftnet's commercialisation of the masts and towers portfolio. Enterprises' demand for hardware and
software remained healthy and grew in double digits at BCX, but overall revenues were impacted by the
continued decline in traditional voice and data revenues, as customers migrate to NGN products.
The continued uptake of our NGN products by retail and enterprise customers grew both active mobile
and fixed subscribers. This, along with double digit increases in data consumption, bode well for the
Group NGN revenue, which grew by 5.1% offsetting traditional revenue declines. NGN revenues
advanced by R440 million, while traditional revenues retracted R219 million, leading to group revenue
growth of R221 million for the quarter.
' Mobile subscribers grew by 6.4% to 19.7 million while mobile data traffic increased by 19.7% to 370
petabytes. Also noteworthy is the advancement of mobile broadband subscribers by 10.9% to 12.7
million indicating growing smartphone users, essential in driving strong data consumption trends.
Mobile data revenue grew by 11.5% as a result, supported by higher prepaid recharges along with
price increases.
' FTTH connections increased by 20.8%, to 567 350 homes with fixed data traffic up 24.4% to 612
petabytes. Openserve's NGN data revenue increased by 6.2% across all segments (FTTH,
enterprise and carrier).
Group EBITDA was stable at R2 477 million supported by revenue growth and cost reductions from the
organisational restructuring effected in Q1 FY2024. However, the resulting EBITDA margin at 21.9%
decreased, largely affected by product mix at BCX, higher expected credit losses on trade receivables
as retail and enterprises customers remained under pressure from the weak macroeconomic
environment, as well as loadshedding-related costs. While loadshedding days reduced to 63 days from
89 days year-on-year ("y-o-y"), the cost of loadshedding remains in the operating cost base.
We have worked relentlessly at mitigating the risk and impact of loadshedding on our operations and
capital expenditure investments made in alternative energy sources (including solar power and lithium-
ion batteries) to improve our mobile and fibre networks' resilience yielded results. Diesel consumption
and related costs at Openserve have decreased and network availability for our mobile network
availability improved to 94% from 89%.
Telkom Consumer growth led by 11.5% mobile data growth
The trajectory of our course remains steadfast, owing primarily to the performance exhibited by our Mobile
business and fibre offerings. Telkom Consumer recorded a 2.5% expansion in revenue, reaching R6
875 million. This upswing is predominantly ascribed to the performance of the mobile business and the
strategic expansion of our fibre services. Notably, our fibre subscriber base saw an increase of 12.2%
year-on-year.
Mobile revenue achieved a 4.8% increase to R5 957 million. This increase stems primarily from our
commitment to innovative and compelling value propositions, thereby effectively stimulating data
consumption. The significant contributor was mobile service revenue, which experienced a 7.1%
growth to R4 926 million. Notably, consumers exhibited an inclination toward seeking value through our
exclusive prepaid pricing platform, Mo'Nice, which contributed 43.7% of recharge revenue.
The Mobile expansion emanated predominantly from the augmentation of our customer base, registering
an upswing of 6.4% to 19.7 million, characterised by a blended ARPU of R86 (Q3 FY2023: R87). Our
post-paid customer base was relatively flat at 2.9 million, recording an ARPU of R182 (Q3 FY2023: R204),
having held steady around this mark for the last 3 quarters. The pre-paid base grew by 7.5%, reaching
16.8 million at an ARPU of R66 (Q3 FY2023: R64).
In line with our strategic imperative to expand data services, we persisted in addressing the evolving
demands of our customers. An increase of 19.7% in mobile data traffic, totaling 370 petabytes,
underscored our commitment to this objective. This growth was further reinforced by a 10.9% rise in
mobile broadband subscribers, now totaling 12.7 million and constituting 64.6% of the total mobile
subscriber base. Consequently, mobile data revenue grew robustly, registering a growth of 11.5% to
R3 689 million.
Our financial performance underscores our resilience in navigating both revenue growth and prudent cost
management strategies in the face of economic challenges. Telkom Consumer's EBITDA increased by
20.6% to R983 million, driven by revenue expansion and a judicious commitment to cost containment.
Mobile EBITDA demonstrated a 3.5% growth and reached R1 195 million. This increase can be seen
despite the heightened provision for bad debts, reflecting the ongoing financial challenges faced by
consumers, and the adverse impact on profitability due to escalating load shedding costs (R115 million).
The deliberate foray into non-connectivity revenue stands as a successful strategic initiative, effectively
diversifying our service portfolio. This approach aligns with our commitment to addressing the evolving
needs of our customers through innovative solutions that extend beyond conventional connectivity
services. The expansion of our non-connectivity services was evident as its revenue increased by 20%
to reach R360 million. Central to propelling this growth is our airtime advance product, which now stands
at approximately R1 102 million, constituting 32% of our overall recharges.
The adequate allocation of capital expenditure facilitated the expansion of capacity and coverage within
our network, spanning a total of 7 721 base stations. This signifies a 3.5% escalation in the count of base
stations, underscoring our steadfast commitment to both expand and fortify the infrastructure of our
mobile network. This strategic investment reflects our dedication to advancing the capabilities and reach
of our network, reinforcing our vision of connecting people to a better life.
Openserve sustains NGN growth trajectory
Openserve continued to experience growth across its NGN products and services. Fixed data NGN
revenue increased by 6.2% for the quarter, underpinned by growth in enterprise services (up 12.5%),
broadband services (up 10.0%) and carrier services (up 1.7%). As Openserve continued driving product
and channel diversification, the increase in its NGN portfolio for the quarter further increased the
contribution to 75.2% of its total revenue for the year to date.
Aligned to its strategic imperative of creating a pervasive network, Openserve increased its access
network which saw the number of homes passed increase 16.0% to 1 185 623 homes. Its drive to provide
fibre connectivity to all South Africans, coupled with executing on its connect-led strategy, resulted in
20.8% increase in the number of homes connected to 567 350, while maintaining its market leading
connectivity rate of 47.9%. While Openserve saw a decrease in xDSL services to approximately 82 000,
its focused execution in modernising its network through fibre deployment, resulted in an overall
broadband growth of 6.6% to over 670 000 connections. As demand for connectivity and consumption
increased, Openserve's fixed data traffic grew by 24.4% to 612 petabytes for the quarter. While the next
generation services continued to grow, the accelerated decline in total fixed voice revenue of 25.4%
negatively impacted on the overall revenue resulting in a decline of 3.1% for the quarter to R3 120 million
as anticipated.
Executing on its strategies of building a resilient network while driving a superior experience in every
interaction, Openserve continued to innovate, digitalise, and improve its processes to achieve an improved
interaction Net Promoter Score of 71. In addition, Openserve continued to diversify its energy mix, with
the expansion in battery distribution, an increase in the number of solar deployments, and an improved
diesel delivery model, resulting in a decrease of 41.7% in diesel spend to R89 million, with the reduced
load shedding supporting this decline for the quarter. The energy mix efforts resulted in a continued
availability of the core network at 99.99%.
These operational improvements coupled with the benefits derived from other cost efficiency initiatives
such as headcount and exchange portfolio optimisation, resulted in an EBITDA increase of 7.0% to
R1 014 million and an increase of 3.1 ppts in the EBITDA margin to 32.5% for the quarter.
Openserve's focus remains in creating a sustainable business that is underpinned by a clear strategic
roadmap and is confident of its ability to execute on its strategy that is centered on creating a positive
impact on customer experience by investing across its network and key enabling capabilities.
BCX maintains topline amid challenging trading environment
Revenue declined marginally with 0.7% against the prior quarter, to R3 482 million. The majority of the
Converged Communications decline was offset with growth in IT as we continued to drive growth in this
portfolio.
The IT business grew revenue by double-digits of 13.1% to R2'120 million largely driven by the continued
over-performance of the software and hardware business, that saw growth of 34.2% supported by the
improved order fulfilment due to the easing of the global chipset shortage. While the low-margin hardware
and software business sustains revenue, it is done so strategically to allow BCX to gain access to a wider
client base and facilitate expansion into high-margin IT services in order to improve the product mix. The
business also benefitted from strengthened cloud offerings and solutions due to the acquisition of
Dotcom.
The Converged Communications business revenue declined by 16.4% to R1 362 million, impacted by
declines in traditional fixed voice and data, due to ongoing migrations to next generation products and
churn of subscriptions. Data connectivity revenue has reached an inflection point with 78.2% of revenue
comprising of next generation revenue.
EBITDA declined by 27.0% to R322 million due to the impact of higher revenue growth from low-margin
hardware and software business, the converged communications legacy declines, as well as higher
impairments of receivables due to slow collections, particularly in the public sector. These were partially
offset by cost reductions emanating from the staff restructuring initiative, as well as cost containment
efforts in the business. EBITDA margin contracted by 3.4 ppts resulting in a margin of 9.2% for the
quarter.
Swiftnet continued to commercialise and expand, with solid earnings growth at strong margins
The tower build program remained steadily on track with 9 towers and 4 In-Building Solutions sites being
constructed during the quarter. The build pace increased in view of the demand that materialised during
the quarter.
Total revenue increased by 4.7% to R333 million, with revenue from the growing customers increasing
by 16.3% to R257 million underpinned by escalations, new tenancies, 5G expansion and antennae
upgrades, reflecting our customers' focus on network improvement and modernisation.
Total EBITDA increased by 11.3% to R246 million, resultant from the optimisation of tower operating
costs. Swiftnet continued to operate at a strong EBITDA margin of 73.9%, a 4.4 ppts improvement y-o-y.
The first phase rollout of Power-as-a-Service was initiated, with sites expected to be completed and
operational before the end of the current financial year. This program supports our customer plans of
ensuring power security and resilience, and in turn will be a new revenue stream for Swiftnet.
RENEWAL OF CAUTIONARY FOR THE PROPOSED DISPOSAL OF SWIFTNET
The board of directors of Telkom ("Board") remains committed to the value unlock strategy premised on
Telkom's market capitalisation not representing the intrinsic value of its underlying assets. As previously
communicated, a multi-party disposal process commenced in late 2022 following the Board's approval to
affirm and realise the value of Swiftnet through an outright disposal of the masts and towers business to
enhance shareholder value and focus on core business competencies. By August 2023, two bidders were
selected to progress with negotiations. The disposal process further advanced in late 2023 and Telkom
entered an exclusivity period with a preferred bidder as indicated in the cautionary announcements
published on 21 November 2023 and 8 January 2024.
With reference to the renewal of cautionary announcement released on SENS today, 19 February 2024,
shareholders are hereby further informed that substantial progress has been made on meeting the
remaining agreed milestones under the exclusivity arrangement including that, the parties have
significantly progressed their negotiations to agree transaction agreements.
The proposed transaction is classified as a Category 1 transaction and is subject to shareholder and
regulatory approvals. As such, shareholders are required to continue exercising caution when dealing in
Telkom securities, until a further announcement is made. In this regard, Telkom expects to be able to
make a more detailed announcement on or before it is required to update this cautionary announcement
in accordance with the JSE Listings Requirements.
REGULATORY AND LEGAL UPDATE
Review of call termination rates by ICASA ongoing
ICASA began its review of call termination rates in May 2021 and commenced with its cost modelling
exercise on 26 May 2023. The purpose of the exercise was to determine the appropriate mobile and fixed
call termination rates. ICASA published the results of its cost modelling exercise for comment on 12
December 2023. ICASA is currently reviewing the comments received by it, including those submitted by
Telkom, and is expected to publish the Draft Regulations on mobile and fixed call termination rates by 15
March 2024.
Radio Frequency Spectrum ' all auction payments settled
The Minister of Communications and Digital Technologies ("the Minister") declared 31 July 2023 as the
final analogue television switch-off date in the frequency bands above 694 MHz. The switch-off process
was finally concluded by 30 September 2023. The sub 1 GHz spectrum obtained in the auction process
which took place in March 2022 is now available nationally for deployment of mobile systems. Telkom
obtained 2x10 MHz in the 800 MHz, which has already been deployed. Telkom paid its final auction fee
of R972 million to ICASA on 29 December 2023.
ICASA has also started the process of licensing additional high demand spectrum and has indicated that
it aims to conclude this process by 31 March 2024. However, to date, the consultations (e.g. competition
assessment) pertaining to this licensing process have not yet commenced, which means that it is unlikely
that ICASA will complete the licensing process by this date.
Electronic Communication 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, MVNOs, passive infrastructure, competition and facilities access.
Telkom submitted a comprehensive response to the Bill by the due date of 31 August 2023. Engagements
with the Minister on the Bill are ongoing.
SIU matter ' Proclamation set aside being appealed
On 19 July 2023, the Pretoria High Court handed down judgment setting aside Presidential Proclamation
49 of 2022 ("the Proclamation"). The Proclamation gave the Special Investigative Unit ("SIU") authority
to investigate various matters, including Telkom's contracting for network and advisory services, and the
disposal of former Telkom subsidiaries.
The Pretoria High Court had declared the Proclamation unconstitutional, invalid and of no force or effect
and awarded costs to Telkom. On 11 December 2023, the High Court granted both the President and the
SIU leave to appeal to the Supreme Court of Appeal. The matter is currently pending before the Supreme
Court of Appeal.
The quarterly information contained in this trading update has not been reviewed or reported on by
Telkom's external auditor. All numbers and percentage growth rates refer to the quarter ended 31
December 2023 compared to the quarter ended 31 December 2022, unless otherwise stated.
Centurion
19 February 2024
Sponsor
Nedbank Corporate and Investment Banking, a division of Nedbank Limited
Quarterly financial information
The financial information in the table below has not been reviewed or reported on by Telkom's external
auditors.
(R'm) Q3 FY2024 Q2 FY2024 Q1 FY2024 Q4 FY2023 Q3 FY2023
December September June March December
2023 2023 2023 2023 2022
Group revenue 11 304 11 048 10 730 11 018 11 083
- NGN 9 100 8 597 8 637 9 024 8 660
- Traditional & other 2 204 2 451 2 093 1 994 2 423
Group EBITDA - reported (total
2 477 2 766 2 259 1 052 2 484
operations)
Group EBITDA - normalised (total
2 477 2 766 2 259 2 117 2 484
operations)
Group EBITDA margin - reported
21.9% 25.0% 21.1% 9.5% 22.4%
(total operations) %
Group EBITDA margin -
21.9% 25.0% 21.1% 19.2% 22.4%
normalised (total operations) %
Group capex 1 196 1 990 1 153 2 055 1 657
Revenue breakdown
Fixed 3 324 3 398 3 389 3 728 3 565
Voice and subscription 724 796 846 880 978
Usage 274 303 324 451 279
Subscriptions 450 493 522 429 699
Interconnection 63 61 58 69 66
Fixed-line domestic 35 34 36 37 38
Fixed-line international 28 27 22 32 28
Data 2 078 2 060 2 062 2 012 2 036
Data connectivity 1 602 1 583 1 576 1 533 1 520
Internet access and related
358 356 359 350 377
services
Managed data network services 117 121 126 128 138
Multimedia services 1 0 1 1 1
Customer premises equipment
279 306 259 601 362
sales and rentals
Sales 83 91 67 408 185
Rentals 196 215 192 193 177
Insurance service revenue 74 73 62 61 52
Other revenue 106 102 102 105 71
Mobile 5 957 5 587 5 448 5 327 5 685
Mobile voice and subscriptions 1 092 1 038 1 044 1 032 1 143
Mobile interconnection 145 119 128 106 146
Mobile data 3 689 3 575 3 389 3 300 3 309
Mobile handset and equipment 960 765 804 801 1 007
Significant financing component 71 90 83 88 80
Information technology 1 786 1 815 1 654 1 665 1 587
Information technology service
710 724 680 533 696
solutions
Application solutions 225 224 236 226 254
IT hardware and software 812 821 695 875 588
Industrial technologies 25 24 30 13 40
Significant financing component 14 22 13 18 9
Other 237 248 239 298 246
Yep 46 58 44 116 72
Gyro 191 190 195 182 174
Total 11 304 11 048 10 730 11 018 11 083
Quarterly information (Business unit stand-alone view)
(R'm) Q3 FY2024 Q2 FY2024 Q1 FY2024 Q4 FY2023 Q3 FY2023
December September June March December
Revenue 2023 2023 2023 2023 2022
Telkom Consumer 6 875 6 560 6 424 6 360 6 709
BCX 3 482 3 544 3 499 3 750 3 506
Openserve 3 120 3 130 3 131 3 243 3 220
Swiftnet 333 326 326 326 318
EBITDA
Telkom Consumer 983 1 042 955 735 815
BCX 322 458 275 524 441
Openserve 1 014 1 114 876 860 948
Swiftnet 246 254 234 217 221
EBITDA margin (%)
Telkom Consumer 14.3% 15.9% 14.9% 11.6% 12.1%
BCX 9.2% 12.9% 7.9% 14.0% 12.6%
Openserve 32.5% 35.6% 28.0% 26.5% 29.4%
Swiftnet 73.9% 77.9% 71.8% 66.6% 69.5%
Mobile service revenue (external) 4 926 4 732 4 561 4 438 4 598
Mobile EBITDA margin 20.0% 20.8% 20.8% 24.9% 20.0%
Quarterly operational information
Q3 FY2024 Q2 FY2024 Q1 FY2024 Q4 FY2023 Q3 FY2023
December September June March December
2023 2023 2023 2023 2022
Broadband subscribers 13 300 371 12 749 692 12 255 546 12 200 850 12 054 013
Fixed broadband subscribers 556 965 554 809 555 170 567 289 567 294
Mobile broadband subscribers 12 743 406 12 194 883 11 700 376 11 633 561 11 486 719
Active mobile subscribers 19 737 370 18 286 160 18 505 103 18 262 331 18 554 558
Pre-paid subscribers 16 793 495 15 320 566 15 538 892 15 301 339 15 624 214
Post-paid subscribers 2 943 875 2 965 594 2 966 211 2 960 992 2 930 344
Mobile blended ARPU (rand) 85.60 84.59 83.12 86.43 87.24
Pre-paid ARPU 65.90 64.40 62.60 63.74 64.16
Post-paid ARPU 181.75 182.41 182.66 200.69 203.73
Traffic
Fixed broadband (petabytes) 612 569 512 484 492
Mobile broadband (petabytes) 370 347 329 308 309
Total fixed-line traffic (millions of
1 001 1 033 1 060 1 161 1 202
minutes)
Network
Homes passed with fibre 1 185 623 1 158 761 1 107 794 1 040 565 1 022 011
Homes connected with fibre 567 350 542 598 515 201 492 812 469 556
Fibre connectivity rate (%) 47.9% 46.8% 46.5% 47.4% 45.9%
Mobile sites integrated 7 721 7 684 7 644 7 546 7 463
Forward looking statements
Certain financial information presented in this trading update announcement may constitute forward
looking statements.
All statements, other than statements of historical facts, including, among others, statements regarding
our strategy; future financial position and plans; objectives; capital expenditures ("capex"); projected costs
and anticipated cost savings and financing plans; as well as projected levels of growth in the
communications market, are forward-looking statements. Forward-looking statements can generally be
identified by terminology such as "may", "will", "should", "expect", "envisage", "intend", "plan", "project",
"estimate", "anticipate", "believe", "hope", "can", "is designed to" or similar phrases. However, the absence
of such words does not necessarily mean a statement is not forward looking.
Forward-looking statements involve several known and unknown risks, uncertainties and other factors that
could cause our actual results and outcomes to be materially different from historical results or from any
future results expressed or implied by such forward-looking statements. Factors that could cause our
actual results or outcomes to differ materially from our expectations include, but are not limited to, those
risks identified in Telkom's most recent integrated report which is available at
https://group.telkom.co.za/ir/index.shtml.
Telkom cautions readers not to place undue reliance on these forward-looking statements. All written and
verbal forward-looking statements attributable to Telkom, or persons acting on Telkom's behalf, are
qualified in their entirety by these cautionary statements. Moreover, unless we are required by law to
update these statements, we will not necessarily update any of these statements after the date of this
document, so that they conform either to the actual results or to changes in our expectations.
Date: 19-02-2024 07:25:00
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