Telkom reaps digital benefits with strong results

Key salient features:

• Revenue up 0.4% to R43.2 billion
• EBITDA up 11.7% to R12 billion with EBITDA margin at 27.7%
• BEPS and HEPS up 89.6% and 53.4% respectively
• Capex up 8.9% to R8.4 billion with capex to revenue ratio of 19.5%
• FCF improved by 15.8% to R2.1 billion compared to a R1.8 billion in the prior year.
• Net debt to EBITDA improved to 0.9 times from 1.3 times

JOHANNESBURG, May 24, 2021: Telkom today released its financial results for the year to March 31, 2021, showing a spectacular bounce in full-year headline earnings, as the telecoms operator saw revenues from next-generation technologies surge, to now make up the lion’s share of its income.

Growth, now driven by the mobile business, saw EBITDA grow 11.7% to R11 973 million, with EBITDA margin expanding by 2.8 ppts to 27.7%. Despite a challenging environment, Group revenue grew 0.4% to R43 222 million. Mobile business revenue growth now more than offsets the anticipated structural decline in fixed-voice revenue and revenue pressures from COVID-19. The results showed a change in revenue mix, with legacy fixed-voice income now contributing only 15% to the business.

Notwithstanding the challenging trading environment, the Group delivered robust underlying earnings growth of 88.1% to R2 622 million, growing BEPS and HEPS by 89.6% and 53.4% respectively compared to the prior year.

Telkom Group CEO Sipho Maseko said that Telkom’s commitment to enabling connectivity meant it was perfectly placed to support the digital transformation and play a key role now and in future in ensuring that the digital world remains open, even when the physical world remained in shutdown for a considerable period.

“Our mobile business continued its growth trajectory as we surpassed 15 million subscribers during the year, carrying even more data traffic in 4G and 4,5G, as well as commencing our 5G rollout.” said Maseko.

“Allocating capital to a data-led and fibre-enabled mobile networks – a growth area of our business – successfully prepared us for the significant increase in data demand and mobile broadband services as more people worked, did business and studied from home.” Mobile broadband traffic increased 53.2%, resulting in mobile data revenue growing by 41.0% and underpinning the 34.5% increase in mobile service revenue to R16 938 million.

Telkom’s BCX unit suffered a decline in revenue as the national lockdown and the work-from-home response impacted fixed-voice revenues from enterprise customers. Information technology (IT) revenue also came under pressure as corporates deferred capital expenditure (capex) and delayed projects given the increased levels of uncertainty.

As the country locked down, BCX successfully focused on optimising its cost base with a clear focus on cash preservation, resulting in EBITDA increasing by 6.6%.

Yep!, which focuses on small and medium businesses, was negatively affected by the responses to COVID-19, although Maseko said the unit had seen good progress. Telkom’s e-business platform had an early uptake of 98 521 monthly business customers on average. During this period Yep! also supported the Ministry of Small Business Development in making sure that the impact on most SMEs is mitigated.

Gyro continued its growth by commercialising existing towers and executing on the new build pipeline which saw revenue increase by 6.6% to R1 237 million supported by an 8.0% increase in the growth of leases.

Driven by a surge in data traffic across fixed fibre and carrier connectivity solutions, Openserve saw a 2.9 % rise in the fibre to the home (FTTH) connectivity rate to a pleasing 51.1%, and homes passed increased by 20.7% to 549 957.

Capital investment of R8 448 million with capex-to-revenue of 19.5% was impacted by the national lockdown in the first half of FY2021 but recovered in the second half. The focus on key growth areas, saw 53.3% of capex investments geared towards mobile, underpinning the growth in mobile service revenue of 34.5%.

In addition, 29.3% of investments were geared towards services such as fibre, core network and service-on-demand.

“Our capital investment over the past five years has enabled us to successfully evolve the business. With next-generation revenue streams contributing approximately 70% of Group revenue and driving growth, we have de-risked the business,” said Maseko.

Telkom is generating sustainable free cash flow and has sufficiently derisked the balance sheet with adequate capacity to fund its strategic capital investment programme.

“We reviewed our capital allocation framework,” Maseko continued, “and are now in a position to reconsider the suspension of the dividend policy. A new dividend policy will be communicated on release of the FY 2022 interim results in November 2021.