Telkom records strong financial performance, continues broadband push

SOUTH AFRICATelecommunication company Telkom has reported strong financial performance for the nine months ending 31 December 2020, posting robust mobile growth and strong free cashflow generation.

The consumer business continues to be the driver of growth, with the mobile business sustaining its upward trajectory, increasing mobile service revenue by 40.7%, compared to the prior period to US$847.6 million.

Telkom said, this was supported by 25.9% growth in active subscribers to 14.9 million and 23.9% increase in blended average revenue per user (ARPU) to US$7.28.

The post-paid market remains challenging for the telco in terms of new connections due to consumers being under financial pressure.

However, it says, it recorded strong growth in post-paid ARPU of 5.6% to US$14.28 with prepaid market remaining  the driver of new connections – growing by 30.8% to 12.3 million.

Further, Telkom, which has been on a profitable path, said its mobile broadband strategy continues to pay off.

Mobile data revenue grew by 46.2% to US$606.3 million, compared to the previous reporting period when it posted US$410.9 million.

The telco noted that revenue growth was driven by a strong increase in mobile traffic of 64.4% and 27% growth in mobile broadband customers to more than 10 million.

The company credited a 9.7% increase in network rollout to 6,135 sites for the growth as it eyes an aggressive push of LTE products in its next phase of consolidating the gains.

“The group delivered a solid set of results where growth was challenging due to COVID-19 and the strained South African economy. This was driven by robust mobile growth, solid sustainable cost management and strong free cashflow generation,” Group CEO Sipho Maseko said.

Telkom’s broadband-led strategy and the decision to invest in infrastructure ahead of demand enabled us to meet the surge in demand for broadband services. These results also reflect the success of our financial strategic objectives, which include building financial resilience through sustainable cost management, cash preservation and disciplined capital allocation as we weather the impact of COVID-19 in our businesses,” Sipho added.

On the anticipated spectrum allocation next month, Telkom said it is ready to participate in the auction and supports the urgent release of high-demand spectrum.

However, it remains concerned about the non-availability of spectrum in the 700MHz and 800MHz bands for commercial use, and the general construct of the licensing dispensation.

“The results reflect the success of our financial strategic objectives, which include building financial resilience through sustainable cost management, cash preservation and disciplined capital allocation as we weather the impact of COVID-19 in our businesses”

Sipho Maseko – CEO, Telkom

The telephony group is currently battling the regulator in the North Gauteng High Court, saying it considers the Independent Communications Authority of South Africa’s (ICASA) decisions to be irregular and unlawful.

Last month, MTN joined the fight after raising concerns with ICASA’s decision to implement an auction structure that creates two categories of mobile operators, namely Tier 1 and Tier 2, and the use of an opt-in auction round in which Tier 1 operators will not be allowed to participate.

MTN’s biggest worry is that of alleged ambiguities surrounding the Tier 1 and 2 classification, which ultimately leads to the exclusion of Tier 1 operators from participating in the opt-in round for portfolios 1 and 2.

MTN and Vodacom are the only operators classified as Tier 1 operators in South Africa.

In the period under review, group earnings before interest, taxes, depreciation, and amortisation (EBITDA) increased by 8.5%, with the margin expanding to 26.6%  and Telkom say, was mainly driven by the benefit of the phase one restructuring programme of approximately US$47.8 million to date.

“Overall operating expenditure costs continue to decline compared to the previous year, exceeding management’s target of containing opex growth below inflation. The ongoing optimisation of the cost to serve remains a key lever to group profitability,” the statement said.

“Mobile cost to serve was optimised despite an increase in the post-paid activities in the third quarter, year-to-date mobile EBITDA grew by 105.8% to US$276.2 million, with an EBITDA margin of 27.7%.”

On cashflow, Telkom says it had strong liquidity to fund capital investment, evidenced by capex of US$345 million that was invested in growth areas, such as the mobile business and fibre.

“Management remains disciplined in capital allocation while investing in the business for growth. Notwithstanding the accelerated capex, Telkom liquidity remains healthy with a stable balance sheet. In the first nine months, Telkom Group generated YTD free cashflow of approximately US$101 million, a significant improvement from the US$14.2 million reported in the first half of the year,” the statement concluded.

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