Telkom’s turnaround begins to produce results
Key financial highlights:
- Operating Revenue increased 1.1% to R32.5 billion
- Operating expenses, excluding depreciation, decreased 2.1% to R18.2 billion
- Group EBITDA increased 3.8% to R8.4bn
- Headline earnings per share, excluding the once-off items increased 35.1%
to 388.0 cents
- Net debt to EBITDA remains at 0.3x
- Return on Invested Capital increased from 4.6% to 6.5%
Telkom SA SOC Limited today published its annual results for the year
ended 31 March 2014, recording a profit after tax from continuing operations
of R1.577 billion, excluding the net curtailment gain in respect of the
post-retirement medical aid liability and related tax benefit, which is
a 5.6% increase from the prior period. Group EBITDA also improved 3.8%
to R8.4 billion (2013: R8.1 billion).
Headline earnings per share from continuing operations, excluding once-off
items, increased 35.1% to 388 cents from the previous year, while basic
earnings per share increased to 285.2 cents from 268.5 cents.
“Our efforts to turn Telkom around are starting to produce results. This
process will continue to be our focus,” said Sipho Maseko, Group Chief
Executive Officer at Telkom.
“We have managed to stabilise revenues through significant once-off items,
which were carefully considered and form part of our strategic imperative
to turn around the business and generate sustainable revenues.”
In line with our guidance to stabilise revenues, we have achieved revenue
growth of 1.1% for the year, confirming that we still face significant
challenges largely as a result of the continued pressure on voice revenue,
resulting from fixed-to-mobile substitution. We recorded promising
growth of 80.2% in mobile data revenue and 69.3% in IT Business Services
Operating costs decreased 2.1%, which was achieved through lowering employee
costs and lower bad debts, through improved credit vetting processes, and
efficiencies gained on various cost management initiatives, including a
reduction in marketing expenditure and lower inventory write offs.
Free cash flow remained strong at R1.2 billion, after capital investment
of R6.5 billion, which increased 12.0%. This was due to a substantial investment
in the upgrade of the Group’s network. The Group remains lowly geared,
with net debt decreasing 0.8% to R2.1 billion, which will ensure Telkom
remains in a solid position to fund its capital expenditure programme.
“Our objective to further stabilise and grow revenue depends on effectively
positioning our resources to drive value and achieving efficiencies across
our operating cost base. This will require us to focus our capital expenditure
on areas that generate satisfactory returns for our shareholders, and avoid
unprofitable operations,” added Maseko.
The Group aims to successfully conclude the proposed MTN South Africa
and Business Connexion transactions within the current financial year,
enabling it to offer fully converged solutions to customers.
Telkom’s turnaround depends largely on improving customer service. While
Telkom has managed to improve its ratings in various customer surveys,
decisions must be guided by customers’ needs to successfully evolve the
Going forward, Telkom expects to see continued pressure on fixed-line
voice revenues, intensified by strong competition, a challenging macro-economic
environment and effects of regulatory changes.
The Group’s results are impacted by the following significant once-off items:
- A R2,169 million net curtailment gain recognized on the post-retirement
medical aid liability and R246 million related tax benefit on the R878
million settlement of the post-retirement medical aid liability;
- R12 billion asset impairment included in the 2013 financial year;
- R434 million cost relating to voluntary severance and early retirement
in 2013; and
- R592 million provision for the Competition Commission fine included
The comparative information for March 2013 has been restated as a result
of the adoption of IAS 19R, the amendment to IAS 16, the reclassification
of iWayAfrica as a discontinued operation and to account for
the change in accounting policy regarding the Cell captive.
In addition the following items have been reclassified:
- Direct cost of R373 million and cost of sales of R1,176 million have been
reclassified from selling, general and administrative expenses to direct
cost and cost of sales, respectively.
- Sundry revenue of R128 million have been reclassified from selling, general
and administrative expenses to other income.
- Motor insurance scheme expenses of R84 million, previously included in
service fees, have been reclassified to employee expenses