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BCX integration, mobile business lifts Telkom’s H1 earnings

15th November 2016

By: Megan van Wyngaardt

Creamer Media Contributing Editor Online

  

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JSE-listed Telkom on Tuesday posted higher earnings before interest, taxes, depreciation and amortisation (Ebitda) of R5.3-billion and an improved Ebitda margin of 26.1% for the six months to September 30.

This was in line with the company’s outlook of maintaining an Ebitda margin of between 26% and 27% for the full year.

Further, headline earnings a share increased 19.7% year-on-year to 336c, while net cash and cash equivalents increased to R1.8-billion, supporting an interim dividend of 131c a share.

The company attributed this growth, which also saw its operating revenue climb 20.6% to R20.2-billion, to the August finalisation of its acquisition of Business Connexion (BCX).

The consolidation of BCX during the quarter resulted in Telkom earning R3.6-billion in revenue from this division. Excluding BCX, operating revenue and net operating revenue grew 2% and 0.9% respectively, attributable to the mobile business.

The mobile business posted earnings before Ebitda of R214-million, compared with a R37-million loss before Ebitda in the six months to September 30, 2015.

Mobile broadband revenue grew 43.2% to R1-billion supported by 2.3-million mobile broadband customers, an increase of 44.5% compared with the prior corresponding period.

Telkom now has 70.8% of its customer base using data at an average of 2.7 GB per customer per month.

During the period, Telkom also refarmed its 1 800 MHz spectrum to extend its long-term evolution (LTE) offering to smartphones. Its smartphone base grew by 43.7% to 1.6-million.

Further, on the back of the launch of its FreeMe product, the company has already seen a significant increase in gross connection monthly run rates and an uplift in average revenue per user in the two-month period since the product was launched.

“We are also observing good growth in our nomadic LTE offering, particularly in multidwelling areas. Here we have seen LTE customers more than doubling from the prior corresponding period, with an average use of 25 GB per customer,” the company said in a statement.

Fixed data connectivity revenue increased slightly at 0.5% to R3.3-billion after a year of decline. The turnaround in the fixed data connectivity is as a result of successful migration of customers from legacy leased lines to Megalines and Metro-Ethernet.

Meanwhile, capital expenditure (capex) also increased 55.8% to R3.6-billion with capex to revenue of 18%, at the top end of Telkom’s guidance, owing to its programme to roll out fibre.

Telkom’s fibre-to-the-home (FTTH) offering has been rolled out to 144 512 homes and 850 gated communities. The group has also implemented 42 176 fibre connections to business premises and is providing fibre links to about 5 600 base stations.

FOCUS FOR THE FUTURE
Looking ahead, Telkom CEO Sipho Maseko said the company would continue to focus on rolling out its Openserve brand – a spin-off of its wholesale business – as a standalone entity.

Openserve supplies wholesale fibre broadband access, Metro Ethernet, Internet Protocol Connect and South African Internet eXchange services. Openserve also resells digital subscriber line Internet services.

He noted that the Openserve brand would lead the company’s FTTH charge, but added that he hoped the business would also pick up more fibre-to-the-business and base station deals, as these were considered “a lot more profitable”.

Speaking at a presentation of the group’s interim results, Maseko said the current phase Telkom was entering was “really the hardest part”, as it involved a “lot of small little things”, including the re-engineering of its processes.

He pointed out that Telkom had now created a solid platform to continue growing the business and that the company would continue to deploy capital to the growth areas of the business, which would ultimately result in higher revenue.

“Our capital investment has given priority to fibre and the mobile business as we see these areas as growth platforms for our business,” he noted.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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