South Africa’s fixed-line access and data communication services provider Telkom posted slower sales growth and a decline in headline earnings on Friday, as intense competition and weak consumer spending impacted the company’s growth.
Telkom’s major rivals, Vodacom and MTN, are also expected to report their earnings figures in the coming weeks.
The market is characterised by a tough economic environment and increased competition, which is likely to have an impact on all operators.
Telkom reported on Friday that operating revenue declined slightly by 0.6 percent to R20.1 billion for the first six months to end-September, mainly impacted by the weak operating environment.
The company also said headline earnings per share (HEPS) declined by 7.4% to a 30.3.9 cents because of lower revenue. HEPS is South Africa’s main profit gauge.
Telkom’s CEO Sipho Maseko said the company’s performance was negatively impacted by the challenging economic environment.
“BCX was mainly impacted as it is exposed to corporate businesses and the public sector which is both under pressure. In the short term, BCX has accelerated cross-selling opportunities across the customer base, ensuring that we retain our customers.”
The company said a higher level of fiscal restraint in South Africa became visible within the BCX customer base as customers continue to make more conscious choices regarding their ICT spend.
Telkom’s EBITDA (earnings before interest, tax, depreciation, and amortisation) dropped 1.9% to R5.2 billion with an EBITDA margin of 25.9% impacted by lower revenue.
To respond to the revenue headwinds, Telkom said it continued to aggressively drive its multiyear cost-efficiency initiatives as part of the ongoing business transformation, which included the rationalisation of vacancies and consolidation of positions to align with the new operating model.
“These measures have had a positive impact in ensuring that our expenses are kept well below inflation,” the company said on Friday.
The company also lowered its interim dividend by 9.9% to 118.1 cents per share.
However, the company said Telkom Consumer performance was driven by the mobile business as the investment in capex yields impressive returns.
Mobile Customers up 35.9%
Telkom Mobile service revenue recorded a 43.2% growth supported by a 35.9% increase in the active subscriber base to 4.4 million with a blended average revenue per user (ARPU) stable at R92. Postpaid subscribers increased 36.3% to 1.3 million, with an ARPU of approximately R184. Prepaid subscribers grew 35.7% to 3 million, with ARPU holding steady at R53.
The company also recorded strong growth in mobile data revenue, which rose 59.8% to R1.6 billion supported by 108% growth in data usage.
“The refarming of our 1800 MHz spectrum is paying dividends with smartphone subscribers increasing by 28.4% to 2.1 million,” said Telkom.
Stimulating digital economy
Telkom has increased its investment in the fibre ecosystem with the purpose of stimulating the digital economy.
The firm said on Friday that the investment enabled it to maintain the lead in the provisioning of high-speed next-generation broadband access with over 151 000 kilometres of fibre deployed nationally.
“The deployment of fibre to the cabinet, which complements our vast copper network, gives us the ability to provide high-speed broadband reaching up to 40 Mbps to over 1.4 million of our customers,” said Telkom.
Extracting value from property portfolio
Gyro was established on 1 April 2017 to unlock value by commercialising the property portfolio, extract value from excess building capacity, smart building solutions and allow Openserve to focus on its core business.
Telkom said Gyro Properties has acquired 39 high potential properties including technical, commercial, and industrial properties across the country with a concentration in urban nodes. The intention is to form partnerships with property developers. It also added that Gyro Towers acquired approximately 6 500 masts and towers across South Africa from Telkom.
Telkom said Trudon continues to enhance its OTT partnership capabilities through partnerships with global players building compelling digital products aimed at helping businesses generate qualified leads for their business.
The firm said Trudon’s partnership with Yext from the Insync presence management platform is also showing positive growth and there are now 5 000 active customers on the platform, since the launch in March 2017.
Furthermore, building e-commerce and marketplace platforms that expand SME’s access to markets and customers remains a priority for Trudon.
Telkom said the home marketplaces application, Yapp, has now achieved 10 000 downloads and over 2 000 advertisements have been placed, with 600 first time chat engagements being conducted with vendors.
Strong balance sheet
Despite the increase in net debt, including financial assets and liabilities to R7.5 billion from R3.4 billion as at 30 September 2017, Telkom said its group’s capital structure remains strong with a net debt to EBITDA ratio of 0.7 times.
“We remain lowly geared with a comfortable debt maturity profile,” said the company, adding that this position it well to fund future growth