Telkom turns to mobile and fibre as landline business takes knock

Telkom. (Duncan Alfreds, Fin24)
Telkom. (Duncan Alfreds, Fin24)

Telkom [JSE:TKG] is steering its business towards "new revenue streams", such as mobile, data and the Internet of Things, as its traditional business is in a decline, according to the group’s annual financial report.

The tough economic environment, political uncertainty, intense competition and low business and consumer confidence saw Telkom report lower headline earnings (down by 18.4%) and basic earnings (down by 19.6%).

The group released its provisional annual results for the year ended March 31, 2018 on Monday. Basic earnings per share were at 602.3c, compared to 749.1c per share reported in 2017. Headline earnings per share were 597c, compared to 731.4c reported in 2017. The annual dividend was also down 16.3%, to 355c per share.

Ebitda was down 3.6% to R10.54bn, compared to R10.94bn reported in 2017. The Ebitda margin is at 25.7%, according to the report.

"We felt the impact of the weak economic environment, as the private and public sectors respectively deferred and lowered their information communications and technology (ICT) spend," said group’s CEO, Sipho Maseko.

Group revenue remained flat at R41bn. There was a 47.2% increase to R5.15bn in mobile service revenue, supported by capital investment, the extension of distribution channels, increased store footprint and data-led products.

"Our mobile business is now a key driver of growth in the group, offsetting the decline in BCX and Openserve," said Maseko.

The group’s fixed service revenue was down 4.7% to R23.19bn.

"I am pleased that the new generation revenue streams, such as mobile and data, are now compensating for the decline in the traditional business.

"Our focus going forward is to increase the contribution from the new generation revenue streams. Despite their lower margin compared to traditional revenue streams, the new generation revenue streams will ensure Telkom's long-term sustainability."

The group continued to invest in its network, allocating 19.3% of revenue, or R7.9bn, to capital expenditure. "Mobile and fibre remain key capex focus areas, and we have strong returns."

The group’s connectivity rate increased 30.7%, compared to 18% reported in 2017. According to Maseko, this is in line with international trends.

"It is imperative for us to continue to modernise our network and invest in key growth areas in line with our strategy," he said.

Going forward, the group will review its business portfolio. This includes reviewing traditional network and IT systems, non-core assets and product portfolio.

"Over the next three years to FY2021, our capital investment will be 16% to 20% of revenue, focusing on key revenue growth areas such as mobile and fibre.

"The capex investment to date is already bearing fruit, with the growth in our new generation revenue streams, such as mobile service revenue and fixed data revenue, offsetting the decline in traditional revenue, such as voice revenue," the report read.

New board appointment

Telkom also announced in a notice to shareholders that chartered accountant Sibusiso Luthuli had been appointed to the board of directors. Luthuli formerly held the position of chief executive and principal officer of the Eskom Pension and Provident Fund for eight years.

Luthuli is also the deputy chairperson of Batseta, an organisation for pension fund fiduciaries, and a non-executive director and chairman of the finance, risk and compliance committee of BCX Limited.

He was previously a non-executive director of Telkom and has served as CEO of Ithala BankLimited and chairperson of Cipla Medpro Pharmaceuticals Limited.

Telkom’s share price was trading at R54.73 by 09:08, up 2.05%.

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