Resilient performance as Telkom grows mobile business, improves free cash flow three-fold
Key salient features:
- Group operating revenue up 3.0% to R43.0 billion
- Mobile services revenue increases 54.4%
- Earnings before interest, tax, depreciation and amortisation (EBITDA) declined 8.7% to R10 330 billion impacted by a 22% decline in high margin fixed voice revenue
- Headline earnings per share (HEPS) declined 30.2% to 504.6. cents
- Capital expenditure up 1.1% to R7.8 billion
- Strong turnaround in free cash flow from negative R1.3 billion in the first half to R2.0 billion for the full year
- Net debt to EBITDA ratio improved at 0.7 times
- Final ordinary dividend of 50.08 cents
Telkom has delivered a solid top-line performance in the year to 31 March 2020, with revenue increasing 3.0% to R43.0 billion, mainly driven by a 54.4% increase in mobile service revenue in a year where South Africa slipped into a technical recession and consumer and business confidence waned. The performance was underpinned by capital investments of R7.8 billion in the period.
The mobile business continues to gain scale and remains the fastest-growing mobile business in South Africa. With 12 million customers, it now accounts for 35% of Telkom’s total operating revenues.
"Our Group revenue performance represents how ongoing investment – particularly in mobile, IT and masts and towers – enables Telkom to grow new revenue streams and offset traditional business shrinkage,” said Telkom Group Chief Executive Sipho Maseko. “We are seeing good returns on our investment, with mobile service revenue increasing by more than half and the connectivity rate for fibre-to-the-home improving from 38.4% in the prior year to 48.2% in the current year – the highest in the market."
Earnings before interest, tax, depreciation and amortisation (EBITDA) declined 8.7% to R10.3 billion largely impacted by the decline in high margin fixed voice revenues as well as an increase in costs related to mobile business growth. The margin pressure was minimised by the company’s relentless focus on cost containment with operating expenditure growing below inflation.
In line with global trends, fixed voice revenue continues to decline, with the group actively migrating customers from legacy systems to newer technologies to protect revenues and improve customer experience. The group invested in the migration of customers to LTE and fibre however, a 22.2% decline in fixed-voice revenue has impacted group revenue growth as we work to reach the revenue inflection point of new technologies at lower margins.
The mobile business remains profitable with its EBITDA margin improving from 1.4% to 14.9% over the past three years.
Headline earnings per share declined 30.2% to 504.6 cents owing to an increase in finance charges and fair value movements and the decrease in EBITDA. EBITDA excludes the IFRS 16 benefit of R1.1 billion and workforce restructuring costs of R1.2 billion in the current year and R728 million in the prior year.
"Telkom has enjoyed the benefits of copper over the last 30 years. It has served us well. Now, we are investing in technology that will power Telkom for the next 30 years," Maseko says.
Capital investments totalled R7.8 billion in the period, with capital expenditure in the mobile business up 22.1% to R3.7 billion. The accelerated investment in the packet optical transport network, amongst others, will future-proof the core network.
Over the past few years, Telkom has balanced evolving technologies, revenue pools and skills. “We saw the technological shift from legacy technologies to fibre, LTE/LTE-A, and our revenues evolved from legacy fixed revenue to new revenue streams,” he continues. “In line with this technology shift, the business is aligning its skills base with the latest technological advancements.”
Gyro contributed positively to the group through a 6.9% increase in revenue as demand for external leases of masts and towers increased.
BCX's external IT business grew 1.8% despite the challenging economic environment. The performance was supported by the drive to grow industry-specific owned Intellectual Proprietary (IP).
Net debt excluding the impact of IFRS 16 decreased to R7.3 billion while cash balances increased to R4.7 billion. The growth in borrowings of R1.7bn is in line with Telkom’s strategy to fund capital expenditure through long-term debt as the group moves to an optimal capital structure.
The board declared a final ordinary dividend of 50.08 cents per share.
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