Weak Consumer Spending and Competition Curtails SA’s Telkom Earnings Growth

“Telkom is shifting towards new revenue streams, such as mobile, data and the Internet of Things.”

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Team Telkom
Team Telkom (Photo Credit: teamtelkom.co.za)

South Africa’s fixed-line access and data communication services provider Telkom reported slower yearly sales growth and a drop in full-year earnings on Monday, as weak consumer spending and intense competition took their toll.

Telkom and major rivals – Vodacom, MTN and Cell C – are grappling with the intense competition and tough economic environment.

They are also having to cope with weak economy, which led to deferred corporate ICT (information communications and technology) spend and reduced public sector spend, negatively impacting its IT business – BCX.

Telkom Boss Sipho Maseko
Telkom Boss Sipho Maseko (Photo Credit: Telkom Annual Report)

“We felt the impact of the weak economic environment, as the private and public sectors respectively deferred and lowered their ICT spend. This impacted Telkom’s performance, particularly in BCX, which serves the business sectors,” Sipho Maseko, Telkom CEO said on Monday.

BCX performance was negatively impacted by both the weak economy and the decline in voice revenue from the connectivity business. As a traditional technology, voice is impacting Telkom’s businesses across the group with customers migrating from circuit voice to voice over internet protocol (VoIP).

“We have strategies to manage the decline in voice revenue while we migrate customers to VoIP and grow new revenue streams through focused investment in areas of future potential growth,” said Maseko.

Despite adverse economic data over the past year, Maseko said Telkom is cognisant that the ICT landscape is changing.

“Telkom is shifting towards new revenue streams, such as mobile, data and the Internet of Things.”

He added that these have already begun compensating for declining traditional business.

“Our focus going forward is to increase the contribution of these new revenue streams, as this will ensure Telkom’s sustainability.”

Telkom logo
Telkom logo (Photo Credit: CubeZoo)

Telkom’s full-year headline earnings per share (HEPS) for the year to end-March fell 18.4% to 597 cents a share and the company attributed this to the higher tax rate of 26.4%. HEPS is South Africa’s main profit gauge.

The group also reported flat revenue at R41 billion driven by a 47.2% rise in mobile service revenue and 1.6% rise in fixed data following a period of decile in fixed data in the prior year.

Telkom’s EBITDA (earnings before interest, tax, depreciation, and amortisation) declined on higher labour costs. It fell 3.6% to R10.5 billion with an EBITDA margin of 25.7%.

While Openserve, Telkom’s infrastructure connectivity provider with the largest open access network across South Africa, reported a 2.9% dropped in revenue to R17,5 billion.

“The pricing transformation journey that Openserve embarked on two years ago is starting to bear fruit with the rate of decline in its revenue slowing significantly,” said Maseko.

“Despite price reductions over the past two years and ongoing voice revenue pressures, Openserve’s overall revenue is improving, with data traffic increasing massively on the network.”

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