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Telkom heads for consolidation to deliver new strategy

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 21 Nov 2023
Telkom Group CEO Serame Taukobong.
Telkom Group CEO Serame Taukobong.

Telecommunications firm Telkom is looking for strategic partnerships for its Openserve and BCX subsidiaries.

This emerged when the company today announced its interim financial results for the six months ended 30 September.

The results follow Telkom issuing a cautionary statement to shareholders, saying it has commenced the process of disposing of its Swiftnet tower and mast business.

Telkom is embarking on a journey to transform and reorganise itself as an infrastructure company (InfraCo) at its core.

This is intended to promote strategic growth through consolidating core assets to drive capital efficiency and promote operational synergies to offset the impact of migrations to next-generation technologies, says the firm.

This journey encompasses consolidating all of Telkom's infrastructure assets into the InfraCo, going to market as “OneTelkom” to harness synergies across the business, while maintaining each business unit’s identity and disposing of non-core assets, it adds.

According to the firm, the journey to the “Telkom of Tomorrow” is anticipated to emerge over 12 to 18 months and be in full effect by the end of 2025.

“From here on, the focus will be to build from this base, grow and scale the business sustainably, and realise optimal returns for the group going forward,” Telkom notes.

“Once the InfraCo structure is in place and the masts and towers transition is concluded, Telkom will consider further opportunities to realise value, including those in relation to the minority partnerships for Openserve and a strategic equity partner for BCX.”

Firm ground

Notwithstanding the challenging operating environment that persisted in the first half of FY2024, Telkom delivered solid earnings, with headline earnings per share and basic earnings per share increasing 46.7% and 52.1%, respectively.

The results show improved financial performance, with group revenue up 2.5% to R21.8 billion and earnings before interest, taxes, depreciation and amortisation (EBITDA) up 1.7% to R5.025 billion.

Headline earnings per share improved 46.7% to 195c and basic earnings per share were up 52.1% to 200.2c.

Free cash flow improved by 130% to R573 million, excluding restructuring costs and improved 74.9% to negative R474 million including, driven by significant working capital improvements.

Telkom Consumer showed 10.3% mobile data revenue increase, 14.6% EBITDA growth and 22.9% mobile data traffic growth, with fibre revenue growth of 31.2%.

Total external revenue from mobile operations grew by 4.1% to R11 billion, driven by 5.8% growth in mobile service revenue, as the demand for data surged by 22.9% to 676 petabytes for the period.

“Our subscriber base now stands at 18.3 million with a blended average revenue per user (ARPU) of R85. Our prepaid customer base expanded by 1% to reach 15.3 million with an ARPU of R64, while the postpaid segment grew by 3.6%, reaching three million with an ARPU of R182,” says the firm.

“We continued to divest and manage the transition from legacy to next-generation technologies, with copper-based voice services now constituting a mere 4.5% of revenue, a decrease from the previous year's 6.2%.”

The mobile broadband subscriber base increased by 10.5% to 12.2 million, while wireless broadband users now make up 66.7% of the total mobile base.

Openserve has grown next-generation revenue contribution to total revenue to 74.4%, and showed EBITDA margin improvement of 2.5ppts to 31.8%. Openserve also maintained the highest connectivity rate in the market of 46.8%, says Telkom.

“These results show we are making steady progress on executing our infrastructure-focused strategy under OneTelkom,” says Telkom Group CEO Serame Taukobong.

“The growth in our mobile and fixed data services demonstrates our investments in next-generation technologies have also put us on the right path, as data consumption continues to surge across our networks.

“We are encouraged by the progress made in the Swiftnet transaction which, when concluded, will enable us to strengthen our balance sheet and continue to execute our strategic goals.”

The company says it has maintained its full-year guidance, while noting the challenging economic climate.

“Our performance shows we are focused on the right areas,” comments Taukobong.

Executive moves

According to Telkom, BCX continued focusing on improving the quality of its revenue mix by accelerating IT services revenue, while managing the migration to next-generation technologies.

BCX revenue increased by 0.7% to R7 billion, primarily due to the double-digit growth in the IT business, partially offset by legacy declines in the converged communications business.

The IT business revenue increased by 10.3% to R4.2 billion, driven by the strong performance of the hardware and software segment resulting from customers' renewals of software contracts, along with cleared prior year backlogs.

“While this growth provided BCX with access to a broader client footprint, it came at lower margins and reduced overall profitability for the period,” the company says.

The firm believes the appointment of incoming group CFO Nonkululeko Dlamini, effective 1 December, will ensure the continued execution of Telkom's reinvigorated strategy.

“Her skills in capital projects, capital raising, cost management and strategy alignment are a strong fit for the executive team. This will lead Telkom's strategic direction as an InfraCo.

“Our current group CFO, Dirk Reyneke, will assume the role of chief capital projects officer. His in-depth knowledge of all Telkom business units positions him well for this strategic role focused on driving capital efficiency, realising optimal returns for capital deployed, and sharing his expertise and experience with his successor.”