Telkom earnings pummelled by load-shedding and people not paying their bills

Telkom has released a trading update for the quarter that ended on 30 June 2023, reporting 3.8% higher group revenue, while group Ebitda declined 4.2%.

By the end of the quarter, Telkom reported that its revenue was R10.7 billion, while earnings before interest, taxation, depreciation, and amortisation (Ebitda) was R2.2 billion.

Telkom CEO Serame Taukobong said the Ebitda decline and contraction of their Ebitda margin to 21% was primarily due to declining legacy revenues and higher direct and operating costs.

Legacy revenues include circuit-switched voice and copper-based fixed-line broadband services.

“The benefit of reduced employee costs following the restructuring exercise, has been partly negated by the additional spend on diesel to mitigate the impact of load shedding,” stated Taukobong.

A slight increase in direct costs, which were negatively impacted by the product mix for the quarter, also contributed to negating Telkom’s lower wage bill.

“We also experienced an increase in the provision for bad debts, with consumers under increasing strain from the macro-economic environment.”

Telkom noted that load-shedding had worsened this financial year, accelerating to stages 4–6, while the first quarter of its previous financial year mainly saw power cuts at stages 1–2.

Taukobong said they have largely incorporated load-shedding into their operating cost base, but warned regular power cuts would continue to impact profitability.

“To this end, Telkom is investing in capital expenditure to improve our mobile and fibre networks’ resilience; as well as reduce diesel consumption by installing and upgrading to lithium batteries along with reconfiguring our sites for batteries to become the primary backup system,” he said.

“We are also increasing our solar power footprint at key properties/sites to reduce the impact of power outages caused by load shedding.”

Taukobong said their revenue grew mainly thanks to growth in new-generation technologies.

“NGN growth was driven by increased data traffic along with good ongoing growth of active subscribers in both our mobile and fibre businesses with Mobile service revenue advancing 6.5%,” he said.

“BCX’s IT business growth, along with Swiftnet’s further commercialisation of its portfolio, also supported group revenue growth.”

Telkom mobile revenue was up 5.2% to R5.5 billion, with mobile service revenue increasing by 6.5% and data revenue up 9.9%.

Mobile data traffic grew by 25.1%, while mobile data subscribers increased by 6.9% year-on-year to 329 petabytes (PB) and 18.5 million subscribers, respectively.

Mobile broadband customers are up 8.9% to 11.7 million, which Telkom said comprises an increase of 63.2% in active mobile customers.

Wholesale and infrastructure division Openserve saw its fixed data new generation revenue growth sustained at 10.6%.

Fixed-line data traffic was up 13.3% to 512 PB.

It sustained its industry-leading fibre-to-the-home connectivity rate of 46.5%. The number of homes connected with fibre also increased by 24.2%.

BCX’s revenue increased 2.9%, with IT business revenue up 17.5% to R2.1 billion.

Swiftnet’s revenue was up 1.2%, with an Ebitda margin of 71.8%.

Openserve investors, suitors for Switnet, seeking buyers for BCX

Taukobong said that Telkom received offers to acquire Swiftnet in its entirety last year.

“These offers were further refined from shortlisted bidders over recent weeks,” he said.

“Telkom is currently engaged in discussions with two bidders and will provide updates on the outcome of the process in due course.”

In addition, Telkom conducted a market-sounding exercise earlier this year to assess the depth of interest in a minority strategic equity stake in Openserve.

Taukobong said they received credible expressions of interest from a range of local and international parties.

“As indicated in our annual results announced on 13 June 2023, Telkom is positioning itself as an infrastructure business at its core,” he said.

“Once this transition has been concluded, Telkom will consider its further options to realise value, including in relation to the expressions of interest received for Openserve.”

Regarding BCX, Telkom management is investigating introducing a strategic equity partner to enhance scale and capabilities in various growth areas — including cloud services and cybersecurity.

“A process is currently underway to assess the market for potential international and/or local partners and to consider available options in this regard.”

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Telkom earnings pummelled by load-shedding and people not paying their bills