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Mobile revenue boosts Telkom as BCX woes continue

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 13 Nov 2018
Telkom group CEO Sipho Maseko.
Telkom group CEO Sipho Maseko.

While Telkom's financial results have been lifted by an increase in mobile revenue, its BCX subsidiary continues to struggle.

The JSE-listed telecommunications giant today published its interim results for the six months ended 30 September, buoyed by a 53.8% increase in mobile service revenue, which pushed group revenue to R20 847 million.

Telkom says the interim results were adjusted to exclude the impact of voluntary early retirement packages and voluntary severance packages of R282 million and the related tax impact of R80 million.

The company announced its latest round of job cuts in September, saying it will offer voluntary separation and voluntary early retirement to qualifying employees.

"Our ongoing capital investment in key growth areas underpinned our revenue growth and will help ensure Telkom's continued profitability and offset a decline in traditional revenue," says Telkom group CEO Sipho Maseko.

"Our results attest to the success of our investment strategy and come despite a challenging operating environment."

Operating costs

Group earnings before interest, tax, depreciation and amortisation (EBITDA) grew 2.9%, benefiting from the growth in revenue and containment of operating costs below inflation, the company says.

Reported headline earnings per share (HEPS) decreased 3.3% to 288c per share, mainly due to the voluntary severance and early retirement package cost in the current period of R288 million and the related tax impact of R80 million, the company notes, adding the underlying performance also improved.

Adjusted HEPS, excluding the impact of the voluntary severance and early retirement package costs, increased 10.3% to 328.6c. Basic earnings per share increased 1.8% to 316.6c, benefiting from EBITDA growth.

For the six months to 30 September, the mobile business saw strong customer growth of 50% to 6.5 million, which resulted in increased service revenue, says Telkom.

It adds that the accelerated performance continues to be underpinned by increased capital expenditure, increased store footprint and its data-led and broadband product positions.

Telkom reported capital investment of R3.3 billion with capex to revenue of 15.7%. Mobile and fibre remain capex focus areas with impressive returns in mobile service revenues, it says. The business expects the capex to revenue ratio to be in line with its guidance by the end of the year as it continues to invest in new revenue streams which are now driving growth in an evolving technology where traditional revenue is dwindling.

Free cash flow recovered from negative R963 million in the prior year to positive R179 million. The improvement was mainly due to an 18.9% decrease in cash paid for capital expenditure and a 13% increase in cash generated from operations before dividend paid, says Telkom.

Openserve revenue increased 0.9% to R8 665 million, underpinned by the success of the commercialisation strategy, Telkom notes, explaining this was mainly driven by the growth in fibre to business connections of 59.5%.

BCX decline

However, BCX continues to be challenged by the weak economy, says Telkom.

It explains that BCX's revenue declined 4.3% to R10 222 million due to the country's negative GDP growth and the decline in voice revenue.

To address this, Telkom says it has devised a strategy to manage the decline in voice revenue, while focusing on profitability in IT services and growth in data revenue.

Last week, the troubled BCX commenced the Section 189 process, which sets out a company's legal requirements for retrenchments.

BCX, formerly Business Connexion, has taken a different business approach since it was acquired by Telkom in 2015 in a R2.67 billion deal.

"Notwithstanding the satisfactory performance, we felt the negative impact of the weak economic environment on our enterprise business, as BCX, which serves all sectors of the economy, continues to be under pressure due to the tough economic environment," says Maseko.

"In addition to the weak economy, BCX's performance continues to be impacted by the decline in voice revenue. While fixed voice revenue declined by 12.4% and fixed data revenue was flat due to the accelerated decline in traditional products, I am pleased that the new revenue streams are compensating for the decline in our traditional revenue streams, albeit at a lower margin."

Maseko notes the declining traditional revenue is at a higher margin than the new revenue streams and the focus is to stimulate data traffic growth to preserve the overall margin.

"Our ongoing investment in new revenue streams has enabled the group to grow revenue in evolving technology, offsetting the shrinkage in traditional revenue."

Meanwhile, Gyro, Telkom's property management business, continues to establish a solid foundation for revenue opportunities and asset value enhancement for the tower and property portfolios, says Telkom.

During the period under review, the external tower and masts revenue grew 21.7% to R314 million from the 1 300 co-located towers. To take advantage of even more external revenue opportunities, Gyro is removing redundant equipment from 1 380 co-located towers and has identified 650 sites for new tower construction.

Yellow Pages has continued its transformation journey towards a digitalised business, the company says. Central to this has been the establishment of work streams that look at implementing an agile and cost-efficient operating model, it concludes.