Behind Telkom’s R5.6-billion jump in profit

Telkom has credited double-digit growth in data traffic, cost optimisation, and improved operational performance for the excellent results it reported on Tuesday, including a 299% increase in after-tax profit.

Although Telkom’s profit growth for the year was exceptional, other aspects of its results were more muted. Specifically, its revenue from continuing operations increased by an underwhelming 3.3%.

The main reason for the surge in profit was the sale of 100% of the share capital in Swiftnet to Towerco BidCo in January of this year.

UK-based investment firm Actis holds a 70% stake in the Towerco BidCo consortium, while Royal Bafokeng Holdings owns the remaining 30%.

Telkom’s sale of Swiftnet resulted in the company reporting a significant increase in its profit for the year from R1.9 billion to R7.5 billion.

Towerco BidCo paid R6.6 billion for Swiftnet, which translates to a price-to-earnings ratio of around 15.5 times.

The purchase consideration represented a R4.7 billion profit on the sale of Swiftnet in Telkom’s group financials.

Telkom previously said the sale of Swifnet’s approximately 3,900 towers and masts marked a significant step in its transformative strategic journey to focus on core operations while realising the value in non-core assets.

“This transaction is a pivotal moment in Telkom’s implementation of our data-led strategy under OneTelkom,” said Telkom Group CEO Serame Taukobong.

“The sale will strengthen our balance sheet, reduce debt, and provide additional capital. This will enable us to focus our investment in next-generation technology infrastructure.”

Taukobong said that beyond the financial implications, the transaction ensures seamless continuity for Telkom’s related businesses, particularly Telkom Consumer and Openserve.

He also said the deal guarantees continued access to Swiftnet’s infrastructure under mutually beneficial terms.

Telkom profit excluding Swiftnet sale was R2.8 billion

Excluding the impact of the Swiftnet sale, Telkom generated a net profit of R2.8 billion. This represents a 6.3% net profit margin and a 91% increase in after-tax profit compared to last year.

“Impressive double-digit growth in mobile and fixed data traffic underscored the strength of Telkom’s core offerings and drove sharp increases in operating margins,” the company said.

Mobile service revenue increased by 10.2% from R19.02 billion to R20.97 billion, driven by a 19.5% surge in subscribers to 15.2 million.

Telkom’s fibre-related data revenue also increased by 10% due to a 5.9% increase at Openserve and a 12.7% jump at enterprise-focused BCX.

Openserve recorded a 13.3% increase in homes passed with fibre, increasing its network footprint from 1,217,110 homes to 1,378,930.

At the same time, it grew its residential fibre connectivity rate to over 50%. This was thanks to a 17.6% increase in homes connected from 590,527 to 694,630.

It should be noted that homes connected measures all residential properties with an Openserve fibre drop installed. It does not need to have an active subscription.

In addition to reporting growth at several key subsidiaries, Telkom said it continued to improve operational efficiency.

“Cost optimisation remains a key focus, and it helped achieve a 25.1% growth in adjusted EBITDA to R11.8 billion, exceeding guidance.”

Telkom reduced its headcount by 3.7% during the past year, from 9,877 to 9,509. Most of these were from BCX, which saw its staff complement decrease from 4,032 to 3,620.

Telkom said improved operational performance helped drive its earnings growth, and reported that it generated cash of R730 million from the sale of 57 properties in its Gyro business.

While Telkom’s surge in after-tax profit can be largely attributed to offloading Swiftnet, the company’s profit growth excluding the transaction was still excellent.

Although overall revenue growth was modest, Telkom’s cost reduction programme appears to have yielded fruit and boosted the company’s earnings.