| Mon 7 Feb 2022, 7:05 | | TELKOM SA SOC LIMITED - Trading update for the quarter ended 31 December 2021 (“Q3 FY2022”) |
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Trading update for the quarter ended 31 December 2021 (“Q3 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 31 December 2021 (“Q3 FY2022”)
Q3 FY2022: Group salient features
• Active customer base growth in an intense competitive landscape
o Active mobile customers up 10.0% year on year to 16.4 million with a blended ARPU of
R91.45, both prepaid and postpaid bases saw an increase in the period under review
- Prepaid customers grew 12.0% year on year to 13.8 million
- Postpaid ARPU grew 1.8% year on year to R215 with a marginal increase in
postpaid customers to approximately 2.6 million
• Mobile broadband continues to support growth
o Mobile data traffic increased by 7.9% year on year to 246 petabytes, supporting mobile
data revenue growth of 2.6% year on year to R3 127 million
o Mobile broadband customers up 4.0% to 10.5 million, representing 63.6% of active
customers
• Fibre growth trajectory sustained in the period under review
o Number of homes passed with fibre grew 65.5% year on year to 801 084
o Number of homes connected with fibre grew by 38.6% to 358 528 representing FTTH
connectivity rate of 44.8%
o Total fixed traffic increased by approximately 23% to 428 petabytes
• Sustainable cost management delivers efficiencies despite challenging Group revenue
o Group EBITDA up 5.4% to R 2 881 million with EBITDA margin expansion of 1.9 ppts to
26.7%
o Total expenses down by 4.9% with operating expenses declining by 7.7% while Mobile
cost to serve ratio was optimised from 30.9% in the prior year to 26.9%
o On a normalised basis, Group EBITDA declined 1.4% as cost savings were not sufficient
to offset a decline of 2.3% in Group revenue
Statement from the Group Chief Executive Officer: Serame Taukobong
Telkom published its trading update for the third quarter of the year, demonstrating solid performance in
the broadband market despite an intense competitive landscape.
“Our Wholesale business, Openserve, continued with its growth trajectory in the fibre market. In line with
its strategy to accelerate the FTTH footprint while simultaneously focusing on connecting a home,
Openserve grew homes passed with fibre by 65.5% year on year to 801k. While increasing the number of
homes connected with fibre by 38.6% year on year, representing a connectivity rate of approximately
44.8%. The lower connectivity rate compared to the prior year reflects the lag between passing and
connecting a home. Mobile broadband demand continued to grow from the significantly higher volumes
seen in the prior year. Mobile traffic grew 7.9% year on year from a higher base to 246 petabytes,
supported by year on year growth of mobile broadband customers. To date, total broadband customers
(fixed and mobile) increased by 3.3% year on year to 11 million”, says Serame Taukobong, Group Chief
Executive Officer.
“Notwithstanding the operational performance, our Group revenue was under pressure in Q3 FY2022. Our
Mobile and Masts and Tower businesses continued to grow, sustaining the higher levels demonstrated in
Q3 FY2021. However, this was offset by the ongoing challenges in the legacy business and IT business.
Noteworthy, despite Group revenue being under pressure, our sustainable cost management continued
to deliver efficiencies with operating expenses (” opex”) declining 7.7% year on year, far exceeding
management’s target of containing opex growth below inflation”, Taukobong concludes.
Operating review
Sustainable cost management continued to deliver efficiencies despite challenges in revenue
Group EBITDA grew by 5.4% with EBITDA margin expanding by 1.9 ppts to 26.7%. Despite pressure on
topline revenue, our sustainable cost management program continued to deliver positive results with total
Q3 FY2022 expenses reducing 4.9% compared to Q3 FY2021. Opex reduced 7.7% year on year, far
exceeding management’s target of containing opex growth below inflation. Mobile cost to serve ratio
reduced from 30.9% in Q3 FY2021 to 26.9% in Q3 FY2022 due to optimised roaming costs as a
percentage of revenue, despite growth in traffic. However, on a normalised basis excluding the impact of
VSP/VERP, Q3 FY2022 Group EBITDA declined 1.4% compared to Q3 FY2021 as costs savings were
not sufficient to offset the decline in Group revenue.
Group revenue for Q3 FY2022 declined by 2.3% year on year to R10 786 million. Q3 FY2022 revenue in
the Mobile business and the Masts and Towers business (Swiftnet) grew 4.9% and 4.6% compared to Q3
FY2021. This was offset by the ongoing challenges in the IT business and the legacy fixed business. Our
Q3 FY2022 legacy fixed business continues to decline, although the rate of decline has slowed down from
double digit decline, we saw in the prior year to 7.1%. In addition, the IT business remains challenged due
to the lingering impact of Covid-19 and the global shortage of chips which led to BCX being unable to fulfill
backorders for IT hardware in the first nine months of the financial year.
Mobile broadband continues to support growth
The Consumer business revenue was relatively stable and comparable to the quarters reported in this
financial year at R6 544 million with a marginal decrease of 0.8% year on year. We continue to
aggressively drive technology refresh to newer technologies, such as fibre and LTE as well as the
utilisation of nascent 5G technology.
Q3 FY2022 mobile service revenue grew 2.3% year on year to R4 399 million. This was supported by a
10.0% year on year growth in active customers to 16.4 million. Given the challenging macro-economic
environment, postpaid consumers are becoming more cost savvy and are continuously searching for ways
to manage and reduce their spend, resulting in real growth only emanating from the prepaid market.
Despite the challenging environment, our postpaid customer base was relatively flat at 2.6 million, with
postpaid ARPU up 1.8% year on year to R215. The prepaid market remains the driver of new connections,
prepaid customers grew by 12.0% to 13.8 million. In the third quarter, we recorded 143 634 prepaid net
additions. Prepaid ARPU declined by 16.1% to R67 compared to R80 reported in the prior year, as a result
of the country slowly normalising following a reduction of Covid-19 restrictions.
Q3 FY2022 mobile data revenue grew by 2.6% to R3 127 million supported by an increase of 7.9% in
mobile broadband traffic. Mobile broadband customers grew by 4.0% to 10.5 million, representing 63.6%
of our active customer base. Capex investment of R2 018 million for the financial year enabled improved
capacity and coverage with 7 082 base stations now integrated, representing a 15.4% year on year
increase in base stations.
Q3 FY2022 mobile EBITDA margin improved by 2.9 ppts, benefitting from the mobile service revenue
growth and cost containments. The Mobile cost to serve ratio continues to improve, decreasing from 30.9%
to 26.9%. The benefit of the second roaming agreement is still to be realised.
Our digital and fintech revenue streams are starting to gain momentum. Fintech products and channels
provide avenues to de-risk our core business, extend sales channels and offering new revenue. With data
being at the core, we will maintain a value driven pricing strategy and offer segmented value propositions.
We are continuing our improvement in customer experience and aim to grow our non-
connectivity/application services revenue with a focus on Fintech, SmartHome and content.
BCX remains under pressure impacted by global supply challenges
Q3 FY2022 BCX revenue declined by 3.6% to R3 769 million because of global supply challenges. Global
challenges, such as the global chip shortage and shipping delays, exacerbates backlogs and offsets any
relief from the waning Covid-19 conditions. After the likely slight rebound in GDP for 2021, we cautiously
anticipate that our stable corporate client base will review ICT projects that were previously delayed due
to the pandemic.
The Converged communication (fixed) business trend continues with a 2.9% increase compared to the
prior year. The improvement is attributable to higher demand in customer premises equipment to support
the increase in data usage. The IT business is still the hardest hit during the constrained environment with
Q3 FY2022 revenue down 8.8% compared to Q3 FY2021. This stems mainly from the backlog in IT
hardware due to the global chip shortage impacting the manufacturing of IT equipment. We continue to
retain our existing customer base.
Management remains committed to driving the cost efficiencies program with a quarter on quarter EBITDA
margin expanding by 2.5 ppts. On a year on year basis, BCX Q3 FY2022 EBITDA margin contracted by
0.7 ppts to 17.7% in comparison to Q3 FY2021.
Whilst the current environment continues to be challenging within the IT market, BCX remains focused on
the opportunities the future holds. BCX was selected as the Cisco Middle East and Africa Security Partner
of the year, competing against over 2 000 Cisco partners across 70 countries. We continue to pursue
partnerships driving customer solutions and focusing on growing our cybersecurity business.
Openserve continues stabilisation path
Q3 FY2022 revenue of R3 348 million was in line with the reported quarters for the financial year and
marginally lower than Q3 FY2021 by 1.2%. Openserve’s revenue stabilisation for the year is mainly
attributable to growth in high capacity links for carriers, an increase in demand for fibre services and a
slowdown in fixed voice churn as we continue to invest in the network.
Significant strides were made in the fibre business, with fibre to the home increasing by 65.5% year on
year to 801 084. The number of homes passed and connected increased to 358 528, an increase of
38.6%, with a connectivity rate of 44.8%. The slight dilution in FTTH connectivity rate reflects a lag between
passing and connecting a home. The increase in the number of homes connected with fibre enabled
Openserve to increase the services, consisting of broadband, voice, and other IP security services. Our
broadband connections on speeds of 10 Mbps and higher improved by 11.4% with now more than 75% of
our customer base utilising such speeds.
Q3 FY2022 EBITDA margin of 30.9% was in line with the prior year, underpinned by the stable revenue
performance and ongoing cost efficiency initiatives.
M&T business sustains its growth trajectory
Q3 FY2022 Swiftnet revenue increased by 4.6% to R317 million and the EBITDA margin decreased
marginally by 0.4 ppts to 78.5%. The tower build program remains on track with 56 towers constructed in
Q3 FY2022, amounting to 114 towers constructed in the financial year. We continue to advance
development partnership opportunities with experienced property investors for select property
development opportunities which are in the investment decision and pre-construction phase.
Unlock value for shareholders
The Value Unlock programme relating to Swiftnet, Telkom’s masts and tower business, is on track. The
Board remains committed in pursuing its listing on the JSE before the end of the financial year. Substantial
progress continues to be made and the Board expects to make a further announcement regarding a
separate listing of Swiftnet soon. The Board believes that a separate listing of Swiftnet will affirm the
valuation of the masts and tower business and its contribution to the overall valuation of the Telkom
business, thereby unlocking further value for Telkom.
The proceeds of the value unlock are expected to be reinvested in the business and/or rebase the balance
sheet and/or shareholder rewards.
Update on the regulatory environment
Telkom supports the release of spectrum. It should be released as soon as possible following a lawful,
reasonable, and fair process. The release of spectrum must promote effective competition for the benefit
the consumer, the sector, and economy. As such, Telkom has requested an expedited review of the
currently flawed process. Subject to the directions of the court, Telkom has requested that the review be
heard on 1-4 March 2022.
ICASA has published a discussion document on the review of the call termination regime. Public hearings
are scheduled for 7 February 2022.
ICASA has indicated that it still views competition in mobile and fixed termination markets to be ineffective.
For this reason, it maintains its stance that call termination rates be regulated. Telkom has expressed
concerns that the proposed removal of the pro-competitive mobile termination rate (“MTR”) asymmetry for
operators with a market share of less than 20% combined with the retention of the existing fixed termination
rate MTR differential will hinder smaller operators’ ability to compete effectively.
SIU investigation
The matters outlined for investigation by the SIU are of public record. Based on information currently at
the company’s disposal, Telkom does not anticipate that the investigation by the SIU will reveal any new
facts and any losses. Therefore, at this point, Telkom expects no material impact on its financial statements
resulting from outcomes of the SIU investigation. Telkom awaits further clarity and direction from the SIU
on the scope and timing of the investigation and is committed to supporting them complete the
investigation efficiently.
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 Q3 FY2022 compared
to Q3 FY2021 unless otherwise stated.
Centurion
7 February 2022
Sponsor: Nedbank Corporate and Investment Banking
Quarterly financial information
The following table includes statutory and normalised EBITDA. The prior year normalised Group EBITDA excludes
R196 million cost related to VSP/VERP. Normalised numbers are prepared on a pro-forma basis, are the responsibility
of the directors and have been prepared for illustrative purposes only and due to their nature, may not fairly
represent Telkom’s performance.
(R’m) Q3 FY2022 Q2 FY2022 Q1 FY2022 Q4 FY2021 Q3 FY2021 Q2 FY2021 Q1 FY2021
December September June March December September June
2021 2021 2021 2021 2020 2020 2020
Group revenue 10 786 10 674 10 618 10 790 11 036 11 141 10 255
Group EBITDA (statutory) 2 881 3 227 2 751 3 062 2 733 3 343 2 565
Group EBITDA margin (%) 26.7 30.2 25.9 28.4 24.8 30.0 25.0
Group EBITDA (normalised) 2 889 3 227 2 751 3 136 2 929 3 343 2 565
Group EBITDA margin (%) 26.8 30.2 25.9 29.1 26.5 30.0 25.0
Group capex 1 545 2 107 1 503 3 323 2 183 1 778 1 164
Revenue breakdown
Fixed 3 743 3 858 3 843 3 993 4 030 4 441 4 072
Voice and subscription 1 203 1 331 1 353 1 451 1 510 1 610 1 539
Usage 479 543 526 550 575 615 473
Subscriptions 724 788 827 901 935 995 1 066
Interconnection 81 104 62 77 159 101 98
Fixed-line domestic 45 53 38 49 52 59 47
Fixed-line international 36 51 24 28 107 42 51
Data 2 034 2 068 2 038 2 053 2 194 2 181 2 143
Data connectivity 1 503 1 520 1 476 1 536 1 579 1 574 1 458
Internet access and related 367 384 370 381 380 390 410
services
Managed data network services 166 161 199 167 186 223 252
Multimedia services -2 3 -7 -31 49 -6 23
Customer premises equipment 346 311 324 368 112 481 228
sales and rentals
Sales 134 116 165 120 -90 232 44
Rentals 212 195 159 248 202 249 184
Other revenue 79 44 66 44 55 68 64
Mobile 5 314 5 158 5 208 5 107 5 066 5 061 4 392
Mobile voice and subscriptions 1 150 1 123 1 113 1 081 1 140 1 092 929
Mobile interconnection 122 119 118 121 113 139 112
Mobile data 3 127 3 163 3 211 3 154 3 047 3 119 2 891
Mobile handset and equipment 861 693 703 700 705 648 395
Significant financing component 54 60 63 51 61 63 65
Information technology 1 458 1 367 1 313 1 417 1 660 1 318 1 591
Information technology service 857 865 729 937 973 695 861
solutions
Application solutions 231 233 252 230 261 301 320
IT hardware and software 330 250 289 175 407 277 376
Industrial technologies 33 14 36 33 34 30 34
Significant financing component 7 5 7 42 -15 15 0
Other 271 291 254 273 280 321 200
Trudon 106 94 77 106 115 114 51
Gyro 165 197 177 167 165 207 149
Total 10 786 10 674 10 618 10 790 11 036 11 141 10 255
Quarterly information (Business unit stand-alone view)
(R’m) Q3 FY2022 Q2 FY2022 Q1 FY2022 Q4 FY2021 Q3 FY2021 Q2 FY2021 Q1 FY2021
December September June March December September June
Revenue 2021 2021 2021 2021 2020 2020 2020
Telkom Consumer 6 544 6 441 6 519 6 526 6 599 6 669 6 021
BCX 3 769 3 674 3 787 3 883 3 911 3 964 3 984
Openserve 3 347 3 373 3 347 3 252 3 387 3 451 3 395
Swiftnet 317 349 325 306 303 326 302
EBITDA margin (%)
Consumer 17.1 19.6 17.9 20.1 16.7 21.3 19.5
BCX 17.7 15.2 12.9 15.5 18.4 18.0 10.7
Openserve 30.9 34.7 29.2 36.9 30.8 28.3 28.1
Swiftnet 78.5 81.9 75.7 87.9 78.9 79.8 76.0
Mobile service revenue (external) 4 399 4 404 4 443 4 356 4 300 4 349 3 933
Mobile EBITDA margin 26.5 29.2 28.4 28.6 23.6 30.5 29.2
Quarterly operational information
Q3 FY2022 Q2 FY2022 Q1 FY2022 Q4 FY2021 Q3 FY2021 Q2 FY2021 Q1 FY2021
December September June March December September June
2021 2021 2021 2021 2020 2020 2020
Broadband subscribers 11 021 999 11 204 557 11 105 198 10 861 786 10 673 916 10 281 853 8 715 232
Fixed broadband subscribers 567 853 562 552 571 023 605 807 617 047 637 884 667 920
Mobile broadband subscribers 10 454 146 10 642 005 10 534 175 10 255 979 10 056 869 9 643 969 8 047 312
Active mobile subscribers 16 430 307 16 258 857 16 068 102 15 325 582 14 931 670 13 686 689 11 792 328
Prepaid subscribers 13 839 870 13 696 236 13 490 473 12 745 988 12 354 754 11 077 104 9 190 702
Postpaid subscribers 2 590 437 2 562 621 2 577 129 2 579 594 2 576 916 2 609 585 2 601 626
Mobile blended ARPU (rand) 91.45 92.40 94.31 104.45 107.80 112.55 111.40
Prepaid ARPU 66.68 67.21 67.84 77.05 79.51 83.55 80.07
Postpaid ARPU 215.49 216.84 221.11 211.22 211.75 211.19 212.79
Traffic
Fixed broadband (petabytes) 428 429 380 357 348 359 364
Mobile broadband (petabytes) 246 248 234 235 228 231 248
Total fixed-line traffic (millions of 1 512 1 589 1 569 1 667 1 768 1 830 1 522
minutes)
Network
Homes passed with fibre 801 084 707 399 612 451 549 957 483 977 458 791 456 163
Homes connected with fibre 358 528 331 735 306 837 281 065 258 640 247 019 232 118
Fibre connectivity rate (%) 44.8 46.9 50.1 51.1 56.7 53.8 50.9
Mobile sites integrated 7 082 6 910 6 646 6 430 6 135 6 159 6 106
Forward looking statements
Certain financial information presented in this trading update announcement may constitute forward
looking statements.
All statements, other than statements of historical facts, including, among others, statements regarding
our strategy; future financial position and plans; objectives; capital expenditures (capex); projected costs
and anticipated cost savings and financing plans; as well as projected levels of growth in the
communications market, are forward-looking statements. Forward-looking statements can generally be
identified by terminology such as “may”, “will”, “should”, “expect”, “envisage”, “intend”, “plan”, “project”,
“estimate”, “anticipate”, “believe”, “hope”, “can”, “is designed to” or similar phrases. However, the absence
of such words does not necessarily mean a statement is not forward looking.
Forward-looking statements involve several known and unknown risks, uncertainties and other factors that
could cause our actual results and outcomes to be materially different from historical results or from any
future results expressed or implied by such forward-looking statements. Factors that could cause our
actual results or outcomes to differ materially from our expectations include, but are not limited to, those
risks identified in Telkom’s most recent integrated report which is available at www.telkom.co.za/ir.
Telkom cautions readers not to place undue reliance on these forward-looking statements. All written and
verbal forward-looking statements attributable to Telkom, or persons acting on Telkom’s behalf, are
qualified in their entirety by these cautionary statements. Moreover, unless we are required by law to
update these statements, we will not necessarily update any of these statements after the date of this
document, so that they conform either to the actual results or to changes in our expectations.
Date: 07-02-2022 07:05:00
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