Telkom earnings fall despite strong mobile growth

Telkom on Monday (22 June), reported a 66.4% decline in headline earnings per share to 208.1 cents per share, citing the impact of once-off items.

The group said that basic earnings per share decreased 78.4% to 121.1 cents per share, impacted by once off costs relating to voluntary severance packages (VSP) and voluntary early retirement packages (VERP) costs, Covid-19 and a higher effective tax rate.

Group revenue grew 3% to R43 billion despite a 22.2% decline in fixed voice revenue, however, the mobile business grew 54.4% in service revenue, from a higher base, to R12.6 billion, it said.

“Our group performance depicts the evolution of technologies and revenue mix,” said Sipho Maseko, group chief executive officer at Telkom.

“In line with this technology shift, the business requires a new skill set to respond to customer needs. Telkom offered VSP and VERPs to 2 271 employees at a cost of R1.186 billion in the current year, he said, noting that 75% of the employees took early retirement packages.

“There were no retrenchments in the current year,” Maseko said.

“The ongoing capex investment enabled Telkom to grow new revenue streams and showed growth in evolving technology, offsetting the traditional business decline. Mobile, information technology (IT) and masts and towers contributed positively to group revenue.”

Capex of  R7.8 billion, with capex to revenue of 18%, underpins revenue growth, he said.

“We focused our investment programmes on key growth areas and we are seeing good returns, with mobile service revenue increasing by 54.4% and the connectivity rate for fibre to the home (FTTH) improving from 38.4% in the prior year to 48.2% in the current  year – the highest in the market.”

Telkom said it’s mobile customer base is up 23.9% to 12 million with net additions of 1.9 million customers. “This was underpinned by our ongoing network investment and successful broadband-led propositions, which continue to resonate well with customers,” said Maseko.

The mobile business remains profitable, with its EBITDA margin improving from 1.4% to 14.9% over the past three years.

Telkom pointed to an annual dividend declaration of 121 cents per share, down from 361 cents per share in 2019.

The group said that its BCX IT business contributed positively to group revenue, despite the challenging economic environment BCX operates in. The performance was supported by the drive to grow the industry-specific owned intellectual property, it said.

The chief executive said that the strategy to separate the group’s property and mast and tower portfolio to increase management focus and unlock value for the group continues to be successful. “Gyro contributed positively to the group revenue, driven by our mast and tower portfolio as the demand for external leases increases,” said Maseko.

“During this time of uncertainty, management will relentlessly focus on cost savings through its sustainable cost management programme, which includes the restructuring programme and other cost levers to protect the profitability of the business,” the chief executive said.

“The full benefits of the two-phase restructuring programme are expected to flow in over the next 12 to 24 months. Management will continue to exercise discipline in allocating capex, making sure that we invest in projects that give us reasonable returns.

“We are cognisant that Covid-19 may have a negative impact on our business. Therefore, we will continuously assess the capex spend in line with revenue forecasts.”

Read: Telkom says restructuring costs to hit earnings – as Covid-19 brings future uncertainty