Voluntary severance package (VSP) and voluntary early retirement package (VERP) costs have dragged down the earnings of JSE-listed Telkom during the first half of the year.

Headline earnings per share (HEPS) for the six months ended September 30 declined by 3.3% to 288c apiece owing to a R288-million VERP and VSP impact and the related R80-million tax impact.

However, the group’s underlying performance improved, with adjusted HEPS, excluding VERPs and VSPs, increasing by 10.3% to 328.6c.

Basic earnings a share increased by 1.8% to 316.6c on the back of a 2.9% uptick in earnings before interest, taxes, depreciation and amortisation (Ebitda) to R5.3-billion, excluding VERP and VSP costs.

Telkom posted an Ebitda margin of 25.5% for the six months under review.

The group’s half-year results were boosted by a 53.8% increase in mobile service revenue, leading to a 5.2% rise in group revenue to R20.8-billion.

During the six months to September 30, the mobile business achieved 50% customer growth to 6.5-million subscribers.

“Our results attest to the success of our investment strategy and come despite a challenging operating environment,” said Telkom Group CEO Sipho Maseko.

“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,” he added.

Mobile and fibre remain capital expenditure (capex) focus areas, with “impressive” returns in mobile service revenues.

Telkom reported capital investment of R3.3-billion, with capex to revenue of 15.7%.

Telkom is confident its capex to revenue ratio will be in line with its guidance by the end of the year, as investment into new revenue streams continues.

The company’s free cash flow recovered from negative R963-million last year to a positive R179-million by the first half of this financial year.

“The improvement was mainly due to an 18.9% decrease in cash paid for capex and a 13% increase in cash generated from operations before dividend paid.

Telkom declared an interim dividend 112c, a 5.1% decrease on the 118c declared in the prior corresponding period.