| Wed 4 Aug 2021, 7:30 | | TELKOM SA SOC LIMITED - Trading update for the quarter ended 30 June 2021 (“Q1 FY2022”) |
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Trading update for the quarter ended 30 June 2021 (“Q1 FY2022”)
Telkom SA SOC Limited
Registration number 1991/005476/30)
JSE share code: TKG
JSE bond code: BITEL
ISIN: ZAE000044897
("Telkom" or “the Group”)
Trading update for the quarter ended 30 June 2021 (“Q1 FY2022”)
Q1 FY2022: Group salient features
• Group revenue up 3.5% year on year to R10 618 million mainly driven by the mobile business
• Mobile data revenue grew 11.1% supported by growth in mobile broadband customers
• Mobile broadband customers up 30.9% to 10.5 million, representing 65.6% of active customers
• Active mobile customers up 36.3% year on year to 16.1 million
• Fixed data connectivity revenue grew 1.2% driven by increased demand in fixed broadband usage
• Fibre to the home grew by 32.2% to 306 837 representing FTTH connectivity rate of 50.1%
• Masts and Towers number of external leases increased 6.9% year on year to 8 685
• Group EBITDA up 7.3% to R 2 751 million with EBITDA margin expansion of 0.9 ppts to 25.9%
Statement from the Group Chief Executive Officer: Sipho Maseko
“Telkom published a solid set of results for the first quarter of the year in a challenging trading and
economic environment. Group revenue and EBITDA grew 3.5% and 7.3% respectively, demonstrating
recovery in topline revenue and strong profitability compared to the prior year. Our sustainable cost
management continues to deliver positive results, culminating in Group EBITDA growing faster than
revenue despite a salary increase of an average of 6.0% across the Group”, says Sipho Maseko, Group
Chief Executive Officer.
Despite the South African economy gradually opening, customers remain under severe financial pressure
due to loss of jobs, reduced income and liquidation of small businesses. We witnessed a continuing
change in consumer behavior in the postpaid consumer market. As customers seek to manage their
spend, we saw a reluctance to renew postpaid contracts with some customers opting to switch from
postpaid to prepaid propositions. In the Enterprise segment, investment lags the economy as the country
grapples with the COVID-19 third wave with many Small and Medium Entities (SMEs) having to close their
businesses in these challenging times.
What has been encouraging is the Mobile business sustaining its growth trajectory despite a very strong
prior year first quarter, with postpaid ARPU holding steady at around R220. Our Masts and Tower portfolio
continued to grow and expanded its footprint. We have also seen a recovery in the Converged
Communication business in BCX with this business recording growth while the IT business remains under
pressure. For the first time since the technology migration at Openserve, the number of homes connected
with fibre surpassed the number of homes connected with copper. Although the overall fixed business is
still declining, we noted positive recovery in the fixed voice usage and fixed data connectivity revenue
compared to the prior year boosting the performance of Openserve.
“This has been enabled by our ongoing capital investment and broadband led strategy which underpins
the evolution of our business. Today, the new revenue streams, being mobile, IT, fibre and masts and
towers contribute more than 70% of Group revenue and remain the driver of the topline growth and the
profitability of the business”, Maseko concluded.
Operating review
Group delivered solid performance
Group revenue returned to growth, increasing by 3.5% to R10 618 million, following a full year of flat Group
revenue. The Mobile business and the Masts and Tower (M&T) portfolio sustained their growth trajectory
into the first quarter. Although the fixed business declined 5.6% in the period, we saw a significant
slowdown in the rate of decline. Fixed voice revenue declined by 13.6% year on year. This compares
favourable to the 33.5% decline reported in the prior year. Fixed data connectivity revenue grew by 1.2%
year on year, compared to the decline of 15.6% reported in the prior year.
Group EBITDA grew faster than revenue with an increase of 7.3% to R 2 751 million with the EBITDA
margin expanding 0.9 ppts to 25.9%. This was underpinned by our effective sustainable cost management
as opex growth was contained below inflation despite an average salary increase of 6% across the Group,
which was effective from 01 April 2021.
Consumer business continues to drive growth
The Consumer business revenue grew 8.3% to R 6 519 million driven by growth in the mobile revenue.
This was partially offset by the decline in fixed-line business due to continued migration to next generation
technologies such as LTE and fibre and ongoing pressure in the SME segment.
The Mobile service revenue grew 13.0% to R4 442 million. This was supported by 36.3% year on year
growth in active customers to 16.1 million. The postpaid market remains challenged in terms of new
connections due to consumers being under pressure from a weak economy. We remain prudent with our
credit management approach and are focusing on our customer value management to preserve and grow
the average revenue per postpaid customer. Despite the challenging environment, our postpaid customer
base was relatively flat compared to the prior year at 2.6 million with postpaid ARPU up 3.8% year on year
to R221. The prepaid market remains the driver of new connections, prepaid customers grew by 46.8% to
13.5 million. In the quarter under review, 744 485 prepaid net additions were recorded. Prepaid ARPU
declined by 15.3% to R68 compared to R80 reported in the prior year due to the significant slowdown in
working from home and online schooling.
Mobile data revenue grew by 11.1% to R3 211 million, supported by 30.9% growth in mobile broadband
customers to 10.5 million which represents more than 65% of our active customer base. Capex of R534
million was invested in coverage with 6 646 base stations to date reflecting an 8.8% year on year increase
in base stations.
Mobile EBITDA margin was maintained at 28.4%, benefitting from both revenue growth and cost
containment. Despite the increase in service revenue, we continued to demonstrate efficient mobile
growth, with the mobile cost to serve ratio improving from 31.6% in the prior year to 28.3% in the current
period. Cost to serve includes the payments to other operators, sales commission, incentives and logistical
expenses.
Driving the growth of adjacent revenue streams and opportunities remains a strategic imperative. We
enhanced our Insurance and Business Lending products to improve our value proposition for our
customers. A Digital Wallet was launched in the market and a significant number of customers have been
verified, registered, and are using the platform. The prepaid purchases make up the most popular
transactions on the platform. The Telkom Digital Wallet uses WhatsApp as it’s channel and thus allows
customers to send money to anyone with a mobile number quickly and securely, without needing to
download a mobile application. Customers can pay or get paid through a QR (quick response) code, send
money, make cash withdrawals or pay for goods. The Telkom Digital Wallet can also be linked to physical
cards such as VISA and Mastercard. We will continue to enhance our Digital Wallet proposition with an
introduction of a suite of Investment products to be launched in the second quarter of the financial year in
partnership with Easy Equities.
BCX remains under pressure due to a weak economy
The South African economy continues to be under pressure due to the impact of COVID-19. BCX, which
serves all the sectors of the economy, has performed in direct correlation with decreased South African
GDP growth. We continue to see sluggish IT spend and investments by Corporates as the country battles
with the impact of COVID-19 and the effects of restrictions on parts of the economy due to lockdowns.
COVID-19 is an ongoing risk and management is driving initiatives to mitigate the risk. BCX maintains an
annuity revenue mix of between 70%-75%, which continues to cushion the revenue decline during the
pandemic. BCX results reflect the challenging environment with its revenue down 4.9% to R3 787 million.
Despite these challenges, existing customers continue to honor their payment obligations. No requests for
extended payment terms were witnessed in the quarter under review.
The Converged Communication business (fixed business) demonstrated encouraging trends with 3.2%
year on year growth in revenue to R1 842 million. The stability in the fixed business is attributable to a
slowdown in fixed voice churn and an increase in usage as there was improved economic activities in the
period under review compared to the prior year when the country was in lockdown level 5.
The IT business is hardest hit by the challenging environment with revenue down 11.8% to R1 827 million
due to delayed investment in IT by enterprise customers. No significant churn was observed from existing
customers.
To mitigate the impact of the overall revenue decline, management focused on driving cost efficiencies
with BCX EBITDA margin expanding by 2.2 ppts to 12.9% compared to the prior year.
Openserve on a recovery path
Revenue of R3 347 million was only R48 million or 1.4% lower than the prior year. This small decline
indicates recovery in Openserve’s revenue following the four previous successive years of significant
decline in revenue. This is attributable to growth in high capacity links for carriers, an increase in demand
for fibre services and a slowdown in fixed voice churn, which has a much smaller proportionate impact
than prior years.
The demand to upgrade carrier sites to high capacity sites by our customers in the mobile industry
contributed significantly to the fixed data business growth in the period under review. The ongoing
investment enabled Openserve to carry the increased demand in data services through upgrading the
high capacity sites and expand its fibre footprint. Capex of R798 million was invested in the first quarter of
the year.
Significant strides were made in the fibre business, increasing the number of homes passed by 34.3% to
612 451 following fibre rollout and supply chain challenges from the international lockdown in the prior
year. The number of homes connected with fibre increased by 32.2% to 306 837 representing a fibre
connectivity rate of 50.1% which remains the highest in the market. We have reached an inflection point,
where the number of homes connected with fibre of 306 837 surpassed the number of homes connected
with copper of 264 186. Despite the decline in the overall fixed broadband numbers, we have seen an
increase in usage with fixed broadband traffic up 4.4%. More than 60% of our broadband customer base
utilise speeds exceeding 10 Mbps. The decline in the fixed voice business continued in the period under
review driven by SMEs, which was partially offset by an improvement in the Enterprise segment.
EBITDA margin improved by 1.1 ppts to 29.2%, underpinned by reduced direct costs and opex compared
to the prior year.
Gyro business sustains its growth trajectory
M&T revenue increased by 7.6% to R325 million and the EBITDA margin increased by 7.7 ppts to 75.8%
as the portfolio continues to be commercialised. The tower build program remains on track with 26 towers
constructed in the first quarter compared to none in the prior year as a result of the COVID-19 lockdown
restrictions. The number of external leases, compared to the prior year, increased by 6.9% to 8 685.
The selected property development opportunities are in various stages of development planning, and
many are nearing the “investment decision and construction phase”. We continue to explore development
partnership opportunities with experienced property investors, whilst ensuring that we support the
transformation of the property sector through investment and development activity opportunities.
Unlock value for shareholders
Management remains committed and firmly on course with the value unlock strategy. Unlocking value
from our portfolio of businesses is a key component of our capital allocation framework and will afford
management flexibility to rebase the balance sheet and reinvest in the business. We continue to explore
several options to unlock further value in the M&T business, which has operated as a separate tower
company for over three years. We hope that further unlocking of value will affirm the valuation of the tower
business and its contribution to the overall valuation of the Telkom business.
Update on the regulatory environment
The High Court interdicted the licensing of high demand spectrum to preserve the status quo until it can
finally determine the lawfulness of the process. The review application is expected to be heard in
September 2021. In the meantime, the affected parties, including ICASA and Telkom, are exploring a
settlement. The use of the temporary spectrum licensed to the MNOs has been extended until 31 August
2021. Licensees continue to pay pro rata spectrum fees in terms of the prescribed spectrum fees
regulations for the use of these frequency bands and to apply the prescribed obligations such as
deployment of virtual classrooms and the zero-rating of access to education and health web sites. The
Authority is expected to extend the use of the temporary spectrum for the duration of the declaration of
the state of national disaster or the conclusion of the spectrum auction.
In order to give context to the Mobile Broadband Service Inquiry process ICASA will be holding public
hearings on 12 and 13 of August 2021. ICASA has found some of our competitors to have significant
market power in certain retail and wholesale markets and as a result of their vertical relationships. We
responded to them in our submission in relation to the draft regulations and findings document that the
draft regulations do not go far enough to address the duopolistic market structure and that, instead of
focusing on increased reporting requirements, they need to consider more appropriate remedies such
as accounting separation and regulated site access and national roaming in order to make competition
more effective.
The information contained in this trading update has not been reviewed or reported on by Telkom’s
independent external auditors. All numbers and percentages in this update reflect first quarter numbers
compared to the prior year first quarter numbers and percentages unless otherwise stated.
Centurion
4 August 2021
Sponsor: Nedbank Corporate and Investment Banking, a division of Nedbank Limited
Quarterly financial information
Q1 FY2022 Q4 FY2021 Q3 FY2021 Q2 FY2021 Q1 FY2021
June March December September June
2021 2021 2020 2020 2020
Group Revenue 10 618 10 790 11 036 11 141 10 255
Group EBITDA 2 751 3 332 2 733 3 343 2 565
Group EBITDA margin 25.9 30.9 24.8 30.0 25.0
Group capex 1 503 3 323 2 183 1 778 1 164
REVENUE BREAKDOWN
Fixed 3 843 3 993 4 030 4 441 4 072
Voice and subscription 1 353 1 451 1 510 1 610 1 539
Usage 526 550 575 615 473
Subscriptions 827 901 935 995 1 066
Interconnection 62 77 159 101 98
Fixed-line domestic 38 49 52 59 47
Fixed-line international 24 28 107 42 51
Data 2 038 2 053 2 194 2 181 2 143
Data connectivity 1 476 1 536 1 579 1 574 1 458
Internet access and related 370 381 380 390 410
services
Managed data network services 199 167 186 223 252
Multimedia services -7 -31 149 -6 23
Customer premises equipment 324 368 112 481 228
sales and rentals
Sales 165 120 -90 232 44
Rentals 159 248 202 249 184
Other revenue 66 44 55 68 64
Mobile 5 208 5 107 5 066 5 061 4 392
Mobile voice and subscriptions 1 113 1 081 1 140 1 092 929
Mobile interconnection 118 121 113 139 112
Mobile data 3 211 3 154 3 047 3 119 2 891
Mobile handset and equipment 703 700 705 648 395
Significant financing component 63 51 61 63 65
Information technology 1 313 1 417 1 660 1 318 1 591
Information technology service 729 937 973 914 861
solutions
Application solutions 252 230 261 301 320
IT hardware and software 289 175 40.7 58 376
Industrial technologies 36 33 34 30 34
Significant financing component 7 42 -15 15 0
Other 254 273 280 321 200
Yep 77 106 115 114 51
Gyro 177 167 165 207 149
Total 10 618 10 791 11 035 11 141 10 255
Quarterly Business Unit information (stand-alone views)
Q1 FY2022 Q4 FY2021 Q3 FY2021 Q2 FY2021 Q1 FY2021
June March December September June
2021 2021 2020 2020 2020
Revenue
Telkom Consumer 6 519 6 526 6 599 6 669 6 021
BCX 3 787 3 883 3 911 3 964 3 984
Openserve 3 347 3 252 3 387 3 451 3 395
M&T revenue 325 306 303 326 302
EBITDA margin
Consumer 17.9 20.1 16.7 21.3 19.5
BCX 12.9 15.5 18.4 18.0 10.7
Openserve 29.2 36.9 30.8 28.3 28.1
Gyro 78.8 78.9 79.1 89.5 61.4
Mobile EBITDA margin 28.4 28.6 23.6 30.5 29.2
Quarterly operational information
Q1 FY2022 Q4 FY2021 Q3 FY2021 Q2 FY2021 Q1 FY2021
June March December September June
2021 2021 2020 2020 2020
Broadband subscribers 11 105 198 10 861 786 10 673 916 10 281 853 8 715 232
Fixed broadband subscribers 571 023 605 807 617 047 637 884 667 920
Mobile broadband subscribers 10 534 175 10 255 979 10 056 869 9 643 969 8 047 312
Active mobile subscribers 16 068 102 15 325 582 14 931 670 13 686 689 11 792 328
Prepaid subscribers 13 490 473 12 745 988 12 354 754 11 077 104 9 190 702
Postpaid subscribers 2 577 129 2 579 594 2 576 916 2 609 585 2 601 626
Mobile blended ARPU (rand) 94.31 104.45 107.80 112.55 111.40
Prepaid ARPU 67.84 77.05 79.51 83.55 80.07
Postpaid ARPU 221.11 211.22 211.75 211.19 212.79
Traffic
Fixed broadband (petabytes) 380 357 348 359 364
Mobile broadband (petabytes) 234 235 228 231 248
Total fixed-line traffic (millions of 1 569 1 667 1 768 1 830 1 522
minutes)
Network
Homes passed with fibre 612 451 549 957 483 977 458 791 456 163
Homes connected with fibre 306 837 281 065 258 640 247 019 232 118
Fibre connectivity rate (%) 50.1 51.1 56.7 53.8 50.9
Mobile sites integrated 6 646 6 430 6 135 6 159 6 106
Date: 04-08-2021 07:30:00
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