Johannesburg, South Africa – 8 June 2015, Telkom SA SOC Limited (JSE: TKG) today announced group annual results for the year ended 31 March 2015.
We are pleased to announce our results for the year ended 31 March 2015. On a like-for-like basis, ie excluding items that do not form part of the results from normal business operations, net revenue increased 3,1 percent to R26,0 billion; while group operating costs, excluding depreciation, were down 1,2 percent to R17,7 billion. Our normalised EBITDA rose by 15,1 percent to R9,0 billion.
Our Retail Consumer segment performed well with excellent results from our mobile business, which increased its net revenues by 174,1 percent to R954 million. Fixed line data revenue increased 1,5 percent to R10,4 billion and mobile data revenue increased 50,6 percent to R988 million. We continued to see pressure on voice usage, particularly in our Enterprise business, resulting in an 11,9 percent decrease in fixed line voice and interconnection revenue to R8,3 billion. Despite the high churn rates in our Consumer business, we grew our ADSL subscribers by 7,9 percent to 1 005 286. Revenue from leased line facilities remained under pressure and declined 22,0 percent to R1 395 million.
We set out to achieve further stability in the business and largely attained it under challenging conditions. We are nearing the completion of the stability phase of our turnaround, which included:
We previously indicated that we have improved capital expenditure efficiency. Through our disciplined approach to where we deploy capital we have achieved a capex to revenue ratio of 16,3 percent. In order to drive our convergence strategy we continue to invest in an all-IP network. We also invested in improving parts of our mobile network, where necessary.
Our net debt was reduced by 92,8 percent to R151 million and our free cash flow increased to R3,9 billion. Our healthy financial position will not only allow us to take advantage of any promising opportunities that could come our way, it has also made it possible for us to pay a dividend this year.
Ordinary final dividend number 17 of 215 cents per share (March 2014: 0 cents) and a special dividend of 30 cents per share in respect of the year ended 31 March 2015 has been declared payable on Monday, 20 July 2015 to shareholders recorded in the register of the company at close of business on Friday, 17 July 2015. Our strong financial position and healthy cash balances warrant a special dividend of 30 cents as we reintroduce dividend payments for the first time since 2011. The total dividend approved by the board is therefore 245 cents per share. The dividend will be subject to a local dividend withholding tax rate of 15 percent which will result in a net final dividend of 182,75 cents per ordinary share and net special dividend of 25,5 cents per ordinary share to those shareholders not exempt from paying dividend withholding tax. The ordinary and special dividends will be paid out of cash balances.
The ordinary dividend has been calculated with reference to Telkom’s current and future debt and cash flow levels. The level of dividend payments going forward will be based on a number of factors, including the consideration of the financial performance, capital and operating expenditure requirements, the Group’s debt level, interest coverage, internal cash flows, prospects and available growth opportunities.
The number of ordinary shares in issue at date of this declaration is 522 969 350, which includes the issuing of 2 185 452 ordinary shares on 4 June 2015 to be allotted in terms of the Telkom employee share plan. Telkom SA SOC Limited’s tax reference number is 9414001710.
| Declaration date | Friday, 5 June 2015 |
| Last date to trade cum dividend | Friday, 10 July 2015 |
| Shares trade ex dividend | Monday, 13 July 2015 |
| Record date | Friday, 17 July 2015 |
| Payment date | Monday, 20 July 2015 |
Share certificates may not be dematerialised or rematerialised between Monday, 13 July 2015 and Friday, 17 July 2015, both days inclusive.
On Monday, 20 July 2015, dividends due to holders of certificated securities on the South African register will either be transferred electronically to shareholders’ bank accounts or, in the absence of suitable mandates, dividend cheques will be posted to such shareholders.
Dividends in respect of dematerialised shareholders will be credited to shareholders’ accounts with their relevant CSDP or broker.
We expect the challenging operating environment of the year under review to prevail in the year ahead, compounded by increasing competitive pressures and regulatory interventions. Our response will be to maintain good cost discipline and a careful and considered approach to capex, and to make good use of our strong balance sheet by taking advantage of any new opportunities for growth.
The next phase of Telkom’s turnaround strategy continues as we reposition the business for commercial sustainability, which will allow us to realise our ambition of connecting South Africans. Our actions have thus far delivered results, but we need to become more efficient. We are reviewing our current operating model. A major part of this review is looking at a deep functional separation between our wholesale and retail businesses. We foresee an infrastructure business unit which will be accountable for network deployment and network efficiency. For this operating model to succeed, we must have an efficient and high-performing network. We will update the market regarding our plans during the third quarter of the calendar year.
We must also have a highly efficient and cost effective workforce. Within our workforce there are significant opportunities to create a highly-skilled and productive team by ensuring that employees have the right skills and capabilities to support the changing business. Much like most telecoms operators globally, we must move towards a leaner and more productive workforce. As previously indicated, our aim is to achieve a staff cost to revenue ratio of 25% over the next four years. The 2016 financial year will see an acceleration of our efforts in pursuit of this objective. To this end, we will continue to engage with our major labour unions.
We are pleased that the Competition Commission South Africa has recommended to the Competition Tribunal that the BCX transaction should be approved with conditions.
The Competition Commission’s recommendation is a significant and positive development as it allows for the commencement of the next phase in the approval process, which is for the Competition Tribunal to set the matter down for hearing.
The guidance provided below excludes the impact of the successful conclusion of the MTN and BCX transactions discussed above.
2016 |
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|---|---|---|
| Net revenue | Stabilise | |
| EBITDA margin | 26% – 27% | |
| Capex to revenue | 15% – 18% | |
| Net debt to EBITDA | ≤ 1 | |
| Mobile EBITDA | Break-even | |
| The financial guidance above has not been reviewed or reported on by our auditors. | ||
In line with the Group’s convergence strategy, key performance indicators are measured and evaluated on a Group-wide basis. The Group therefore consists of one operating segment.
However, this report provides further details of the fixed-line business which offers fixed-line access and data communication services through Telkom South Africa, and the mobile business, which offers mobile voice services, data services and handset sales through Telkom Mobile. The contribution of the subsidiary, Swiftnet, is also shown separately. The Telkom category represents Telkom Company’s contribution to the Group, including consolidation entries.
The comparative information for March 2014 has been restated as a result of the reclassification of Trudon as a discontinued operation. Refer to note 2.3 in the condensed consolidated provisional annual financial statements.
In addition, the following item in the comparative reporting period has been reclassified to provide more relevant disclosure:
The Group recorded a profit after tax of R2,9 billion (March 2014: R3,6 billion). This is 19,5 percent lower than the previous year and was driven by a one-off R2 169 million net gain recognised on the curtailment of the post-retirement medical aid liability included in the comparative reporting period as well as retrenchment, voluntary early retirement and severance package costs of R591 million for 1 205 employees in the current year.
The one-off items above are not part of the results from normal operations for the year under review and have therefore also been excluded from the discussion below.
The group recorded a normalised profit after tax of R2 769 million (March 2014: R1 175 million) and EBITDA of R8 978 million (March 2014: R7 798 million), resulting in a 60,0 percent increase in headline earnings per share. The increase was driven by the benefit from lower payments to mobile operators and lower employee expenses due to the curtailment of the post-retirement medical aid liability as well as higher investment income. This was partly offset by lower gains on foreign exchange and fair value movements as a result of the implementation of hedge accounting and lower gains recognised on the underlying assets held by the cell captive.
We managed to reduce the EBITDA loss of our Mobile business by 48,7 percent by increasing service and subscriptions revenue (excluding equipment sales) by 48,0 percent. We also recorded promising growth of 50,6 percent in mobile data revenue and 82,4 percent in IT Business Services revenue. Data revenue now constitutes approximately 35,9 percent of Group revenue, which increased 4,5 percent from the prior year. However, we still face significant challenges in our fixed-line voice revenue as fixed-to-mobile substitution continues. Fixedline data revenue continues to be impacted by lower pricing driven by competition.
We managed to reduce operating costs by 1,2 percent. This reduction was largely driven by lower employee, effective marketing and security costs and a decrease in vehicle leases. Increased bad debts and property management costs partly offset these savings.
The group generated strong cash flows as we took a measured approach when considering capital investment as well as focusing on managing our balance sheet more efficiently. This resulted in a healthy capital structure with net debt decreasing by 92,8 percent to R151 million at 31 March 2015.