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Next-gen tech makes lion’s share of Telkom’s income

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 24 May 2021
Telkom Group CEO Sipho Maseko.
Telkom Group CEO Sipho Maseko.

Telkom has posted strong results, as the telecoms operator saw revenue from next-generation technologies surge, to now make up the lion’s share of its income.

The company this morning announced its financial results for the year to 31 March 2021, showing a bounce in full-year headline earnings.

In a statement, Telkom says growth, now driven by the mobile business, saw earnings before interest, taxes, depreciation and amortisation (EBITDA) grow 11.7% to R11.9 billion, with the EBITDA margin expanding by 2.8 percentage points to 27.7%.

The company says despite a challenging environment, group revenue grew 0.4% to R43.2 billion.

According to Telkom, mobile business revenue growth now more than offsets the anticipated structural decline in fixed-voice revenue and revenue pressures from COVID-19.

The results show 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 R2.6 billion, growing basic earnings per share and headline earnings per share by 89.6% and 53.4%, respectively, compared to the prior year.

Telkom Group CEO Sipho Maseko says the company’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 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 5G, as well as commencing our 5G rollout,” says Maseko.

“Allocating capital to 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% and underpinning the 34.5% increase in mobile service revenue to R16.9 billion.

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 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%, says Telkom.

Yep!, which focuses on small and medium businesses, was negatively affected by the responses to COVID-19, although Maseko says 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 the impact on most SMEs is mitigated, says Telkom.

It adds that Gyro continued its growth by commercialising existing towers and executing on the new build pipeline which saw revenue increase by 6.6% to R1.2 billion supported by an 8% increase in the growth of leases.

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

Capital investment of R8.4 billion 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%, says Telkom.

In addition, it notes, 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,” says 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 continues, “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.”