Telkom is reconsidering its dividend suspension after reporting strong growth in the year ended March 31, 2021.

In June last year, Telkom suspended its dividend policy for three years from the 2021 financial year to preserve its cash position and maintain a flexible balance sheet ahead of the now-paused spectrum auction.

At the time, Telkom indicated that it would redirect the funds to the acquisition of spectrum and to complete its key capital expenditure (capex) programme.

“After two years of strong free cash flow generation, management believes that Telkom is generating sustainable free cash flow and has sufficiently derisked the balance sheet with adequate capacity to fund its strategic capital investment programme,” said Telkom Group CEO Sipho Maseko.

“We reviewed our capital allocation framework and are now in a position to reconsider the suspension of the dividend policy.”

Telkom will review the dividend policy and communicate the new dividend policy when it publishes its interim results in November.

The group’s full year results for the 12 months ended March 31, 2021, showed growth of 11.7% in earnings before interest, taxes, depreciation and amortisation (Ebitda) to R11.97-billion, with the Ebitda margin expanding by 2.8 percentage points to 27.7%.

Basic earnings a share increased 89.6% to 529.1c, while headline earnings a share expanded 53.4% to 561.5c during the year under review.

Free cash flow improved by 15.8% to R2.1-billion, compared with R1.8-billion in the prior year.

Telkom’s revenue grew 0.4% to R43.2-billion, driven by the mobile business service revenue growth of 34.5% to R16.9-billion.

The mobile business revenue growth now more than offsets the anticipated structural decline in fixed-voice revenue and revenue pressures from Covid-19, while the revenues from next-generation technologies surge now make up the lion’s share of its income.

The results also reveal a change in revenue mix, with legacy fixed-voice income now contributing only 15% to the business.

“Over the past five years, we have been investing in new revenue streams to evolve our business from a legacy to next-generation business. Today, next-generation revenue contributes more than 65% of group revenue,” Maseko pointed out.

“We have also reached the inflection point where the profitability of the new revenue streams exceed legacy.”

The mobile business surpassed 15-million subscribers during the year with an average revenue per user of R104.

“Allocating capital to a 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,” he continued.

During the year under review, mobile broadband traffic increased 53.2% to 942 Pb, resulting in mobile data revenue growing by 41% and underpinning the 34.5% increase in mobile service revenue to R16.9-billion.

Meanwhile, revenue from Telkom’s BCX unit declined as the national lockdown, owing to the Covid-19 pandemic, and the work-from-home response, impacted fixed-voice revenues from enterprise customers.

Information technology revenue also came under pressure as corporates deferred capex and delayed projects given the increased levels of uncertainty.

However, during the period, BCX successfully focused on optimising its cost base with a clear focus on cash preservation, resulting in Ebitda increasing by 6.6%.

While Yep! was negatively affected by the responses to Covid-19, good progress is being seen within the unit, Maseko commented.

“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 that the impact on most small and medium-sized enterprises is mitigated,” he noted.

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.

Openserve saw a 2.9 % rise in the fibre-to-the-home (FTTH) connectivity rate to 51.1% and homes passed increased by 20.7% to 549 957 driven by a surge in data traffic across fixed-fibre and carrier connectivity solutions.

However, despite the increased revenue growth in FTTH and carrier-based connectivity solutions, the ongoing impact of Covid-19 on the Enterprise segment resulted in a weakening in legacy voice and data requirements, which led to a revenue decline of 10.9% to R13.48-billion.

The group reported capital investment of R8.4-billion during the year under review with capex-to-revenue of 19.5%.

“Our capital investment over the past five years has enabled us to successfully evolve the business. With next-generation revenue streams contributing about 70% of group revenue and driving growth, we have derisked the business,” said Maseko.

“We will continue to invest in our growth areas and expect to spend R8-billion to R8.5-billion a year while continuing to grow our revenue. Discipline in capital allocation will be exercised as we seek to improve returns on capital investment,” he concluded.