JSE-listed Telkom has posted growth in earnings for the six months ended September 30, 2021, with group profitability continuing to grow ahead of revenue, underpinned by sustainable cost management.

The group reported earnings before interest, taxes, depreciation and amortisation (Ebitda) of R5.9-billion during the first half of the year, a 1.2% increase on the corresponding period the year before, with the Ebitda margin increasing 0.5 percentage points to 28.1%.

Telkom attributed this to an effective sustainable cost management programme, which targeted below inflation operating expenditure (opex) growth and cost to serve optimisation.

“The results attest to the success of our investment strategy and prudent cost management through the volatility of the last quarter,” said Telkom Group outgoing CEO Sipho Maseko.

During the six months under review, Telkom’s opex decreased 3.1% year-on-year despite an average group-wide salary increase of 6% effective April 1.

Headline earnings a share surged 30.4% to 285.5c apiece in the first half of the year under review, while basic earnings a share increased 27.3% to 276.8c, mostly owing to a 34.9% decline in finance charges and fair value movements to R659-million, in addition to the hike in group Ebitda.

Telkom sustained revenue of R21.3-billion during the six months to September 30, driven by revenue growth of 9.7% and 4.6% in the mobile business and the masts and towers business respectively.

The half-year performance, however, was offset by the information technology business, which remains under pressure, and a decline in the fixed-line business as customers migrate to new technologies such as fibre and long-term evolution (LTE).

During the period under review, Telkom increased its capital investments by 22.7% to R3.6-billion, representing a capital expenditure (capex) to revenue intensity of 17%.

“In line with management expectations, we generated negative free cash flow of R839-million owing to an increase of R1.1-billion in capex paid in the period under review. During the period, we executed an off-balance sheet disposal of the handset receivable book amounting to about R300-million, in line with management's cash release initiatives to improve working capital management,” he added.

DIVISIONAL PERFORMANCE

Telkom Consumer’s revenue increased 2.1% to R12.96-billion during the six months under review, partially offset by a decline in the fixed-line business and ongoing pressure in the small and medium-sized enterprise segment.

Mobile service revenue expanded 6.8% to R8.84-billion, supported by 18.8% year-on-year growth in active customers to 16.3-million.

Mobile data revenue grew by 6.1% to R6.37-billion, supported by 10.3% growth in mobile broadband customers to 10.6-million.

“Telkom Mobile continues to optimise the cost to serve as it grows, with the optimization of roaming expenses contributing to the improvement in Ebitda.

“Our strategy to build a data-led network continues to serve us well with 10.3% growth in mobile broadband customers, representing a surge of over 65.5% of our active customer base,” Maseko commented.

During the six months ended September 30, BCX was the hardest hit by the challenging environment, with revenue declining 6.1% to R7.46-billion.

“We continue to see sluggish investments by corporates as the country battles with the impact of the pandemic and the effects of restrictions on parts of the economy. The IT business remains under pressure owing to the lingering impact of the lockdown and the global supply chain constraints and shortages of semiconductor chips,” he explained.

However, Openserve continued to stabilise during the first half of the year, with its topline revenue slightly down by 1.8% to R6.72-billion, supported by the fibre ecosystem, including fibre to the base stations and fibre to the business.

From a fibre-to-the-home perspective, the number of homes passed increased by 54.2% to 707 399 and the number of homes connected with fibre increased by 34.3% to 331 735, surpassing the 230 817 homes connected with copper.

Meanwhile, Gyro masts and towers (Swiftnet), which continued to commercialise its masts and towers business, with revenue increasing by 7.3% to R674-million, is being prepared for a JSE listing.

Telkom aims to separately list Swiftnet before the end of the financial year.

“Given the challenges in the first half of the year, management will focus on growing the topline revenue and profitability in the second half of the year,” Maseko added, noting that discipline in capex would continue and the company would focus on initiatives to improve cash generated from operations.

“Management expects free cash flow to normalise in the second half of the year and return to positive territory similar to the past two years. As the growth in the mobile business normalises and the fixed-line business is starting to stabilise following periods of decline subsequent to execution of a migration strategy, management will now focus on its IT business.”

Telkom is investigating a strategic intervention in the business which could include the introduction of a strategic partnership in the business to address capacity and capabilities in BCX and ensure sustainable growth going forward.