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Telkom's interim earnings fall on higher costs, including loadshedding-related diesel costs

Telkom's logo displayed on the wall of a building

Photo by Bloomberg

23rd November 2022

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

     

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JSE-listed Telkom on Wednesday reported a double-digit decline in earnings and flat revenue for the six months ended September 30 amid a tough operating environment characterised by constrained consumer spending and rising operating costs.

A sluggish economy, increasing electricity and fuel prices, rising interest rates cycle and high unemployment, which constrained and impacted levels of consumer spending, negatively impacted the group’s performance during the half-year under review.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) declined 17.3% to R4.9-billion, with a 4.7 percentage point Ebitda margin decline to 23.4%, during the first six months of the year, owing to flat revenues, changes in the consumer product mix and increased operating expenses, including costs related to loadshedding.

A 31.4% increase in the cost of handsets, equipment, software and directories, following higher mobile handset sales of 19.7% and the increase of 73.1% in information technology (IT) hardware and software revenue, contributed to the lower Ebitda.

“Total operating expenses increased by 5%. The increase stayed well below inflation. The main contributor to the rise in service costs is expenses to ensure uninterrupted service during loadshedding,” said Telkom Group CEO Serame Taukobong.

Service fees increased 21%, driven by a significant increase in diesel expenses, owing to increased loadshedding, and higher advisory fees incurred, mainly attributable to mergers and acquisition-related transactions and key strategic projects.

Headline earnings a share contracted 51.9% to 137.2c and basic earnings a share declined 52.5% to 131.6c during the six months to September 30.

Telkom reported a 0.7% decline in revenue to R21.2-billion, driven by good traffic growth and an increase in mobile handset and IT hardware and software sales, offset by the impact of legacy product migration and a decrease in fixed, mobile and IT service revenue owing to the strained economic conditions.

Telkom’s Consumer division reported a 10.9% increase in mobile customers to 18-million subscribers, with 61.1% of customers using broadband services.

Despite a 14.1% increase in mobile data traffic, mobile revenue from external customers remained flat at 2.3%, owing to the changes in the product mix to ensure Telkom retains and grows mobile subscribers, while also retaining its value positioning of providing affordable services.

“The plan to stabilise Openserve continues positively, with 65% of revenue now coming from next-generation products and services. The growth in high-capacity links for carriers, an increase in demand for fibre services and growth in enterprise connectivity is also pleasing,” Taukobong continued, noting, however, that despite a 10.8% growth in next-generation revenue, Openserve’s total revenue declined by 4.3%.

Openserve continued with its growth trajectory in the fibre market, increasing homes passed with fibre by 35.8% and homes connected with fibre by 33.7%.

Openserve currently has the highest homes connected ratio in the country at 46.2%.

BCX, meanwhile, reported a 0.8% growth, boosted by a satisfactory 13.7% growth in IT business revenue.

This segment was muted for the past two-and-half years as corporates reduced IT spend.

Swiftnet experienced a 2.1% decrease in revenue to R660-million, driven by the impact of continued focus on modernisation from mobile network operator (MNO) customers.

“We expect modernisation to continue over the next year, coupled with the deployment of new base station sites as the MNOs deploy their respective newly acquired permanent spectrum allocations,” says Taukobong.

Management is continuing to explore various options of realising the value of the mast and towers business and will update the market in due course.

“During the period under review, capital investment increased by 2.2% to about R3.7-billion, as we continue to focus on investing in fibre and mobile, our key growth areas. We are confident of our ability to unlock value for shareholders as we achieve scale in newer technologies.”

Meanwhile, Telkom independent nonexecutive director and chairperson Sello Moloko has resigned, citing workload reasons, effective no later than March 31, 2023.

The board has started the process to identify a suitable replacement and once the board has agreed on the date of Moloko’s resignation, a further announcement will be published.

Moloko was appointed as an independent nonexecutive director in March 2018 and as chairperson in June 2019.

Edited by Creamer Media Reporter

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