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Telkom rings in weak interims as customers move to new tech

Telkom rings in weak interims as customers move to new tech

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Mobile operator Telkom’s interim profit dived 52.9% as consumers moved away from legacy technology to new technologies such as fibre and LTE.

In its interim results for the six months ended September 30, 2022, the mobile operator said yesterday that profit dipped by 52.9% year-on-year to R641 million, while headline earnings per share (Heps) decreased by 51.9% to 137.2 cents.

The mobile operators Heps was expected to decrease between 45% and 55%.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) decreased by 17.3% to almost R5m.

“This was due to limited top-line performance resulting from legacy revenue declines and pressures on our cost base. Direct costs increased, driven by materially higher handset and equipment costs. While the rest of the operating costs were well-managed, energy costs increased significantly due to the sustained load shedding during the period. This resulted in an increased cost base,” Telkom said.

Telkom CEO Serame Taukobong said the period was characterised by strained economic conditions placing consumers under pressure and an intensely competitive landscape.

“Group performance suffered under a sluggish economy, the increasing electricity and fuel prices, rising interest rates cycle, and high unemployment, which constrained and impacted levels of consumer spending,” he said.

He said returning cash to shareholders remained a key element of Telkom’s capital allocation framework.

No dividend was declared and Taukobong said Telkom was in the final year of the three-year dividend policy suspension period.

“The board remains committed to reinstating the dividend policy at the end of the 2023 financial year and is reviewing the policy,” he said.

Revenue dipped 0.7% to R21.15 billion due to a drop in fixed, mobile and IT service revenue among strained economic conditions.

Telkom said mobile business continued to drive growth in Telkom Consumers. Total mobile revenue grew marginally by 0.5% as the product mix evolved toward longer post-paid contracts.

Telkom’s pre-paid subscriber base grew by 10.7% to 15.2 million. In the post-paid market, the post-paid base increased by 11.7% to 2.9 million while the average revenue per user (ARPU) dropped to R206.

Telkom said legacy fixed line remained under pressure because of the move from traditional fixed voice to newer technologies.

In the period under review, Openserve's revenue declined by 4.3% as customers migrated from legacy to next-generation technologies.

BCX saw a recovery over the period, as it achieved 13.7% revenue growth in the IT business for hardware and software solutions.

“Overall revenue grew marginally by 0.8%, mainly boosted by the IT segment. This improvement in performance signals a positive outlook for the remainder of the financial year,” Telkom said.

Meanwhile, Telkom announced that its chairperson, Sello Moloko, had stepped down from his position.

Looking ahead, Taukobong said: “Given the material increases in the cost of sales for Telkom Mobile, the accelerated decline of the legacy business at Openserve, BCX and Consumer, plus the impact of load shedding, we are revising our guidance to the market.

“In the medium-term, we expect revenue and Ebitda to grow at low to mid single digit percentages.”

Mergence equities head Peter Takaendesa said yesterday that Telkom’s results remained weak, with earnings down a lot toward the midpoint of that guidance.

“The message of operational weakness is there and probably will continue for at least the second half of the year,” he said, adding that he did not think Telkom’s cost pressure, softer prepaid ongoing pressure on the fixed line business would change any time soon.

“Load shedding is adding to cost pressure. But most of the cost pressure comes from employee costs,” he said.

Takaendesa said Telkom needed to rebase the cost.

“They need to shut down some of their legacy services because now they are moving to what is called new generation services. But at the same time, some of their kinds of problems use the legacy or old system, so they still need to find a way to decommission, to remove some of those costs,“ he said.

BUSINESS REPORT

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