Telkom half-year profit jumps on lower depreciation cost

Telkom has seen its profit grow for the six months ended 30 September 2023. Despite the challenging operating environment characterized by load shedding, high interest rates and intense load shedding, headline earnings per share increased by 46.7% to 195.0 cents over the period.

“Profit for the period was boosted by lower depreciation charges and growth in EBITDA, while higher interest rates materially increased net finance costs compared to the comparative period,” the group said.

Overall group revenue increased by 2.5% to R21.78 billion, primarily due to growth in mobile traffic, the monetisation of the group’s fibre infrastructure and growth of the IT business.

“Our cost-reduction initiatives bore fruit, partially offset inflationary increases and resulted in operating expenses increasing by below inflation at 2.4%. Despite this increase, group EBITDA grew by 1.7% to R5,025 million, limited by higher bad debt provisions,” the group added.

The group reported profit before taxes of R1.3 billion (2022: R899 million) and a profit after tax of R976 million, up from a restated profit of R641 million in 2022.

The group’s overall capex was also reduced by 14.8% – just over R500 million – to R3.14 billion.

“The decrease aligns with our strategy and the cyclical nature of capital expenses. The decline in mobile capex spent is due to the investment in backup power in the comparative period to mitigate the impact of accelerated load shedding not evident in the current period.”

“We mainly invested in our mobile business, which expanded its mobile footprint by 4.1% to 7,684 integrated sites.”

Despite the increase in profits and revenue, the group has still not declared an interim dividend.

Financials	H1 2023	H1 2024	Change
Revenue	R21.23 billon	R21.23 billion	+2.5%
Capex	R3.69 billion	R3.14 billion	-14.8%
Basic Earnings PEr Share	131.6 cents	200.2 cents	+52.1%
Headline Earnings Per Share	132.9 cents	195.0 cents	+46.7%
Dividend	–	–	–

Looking more specifically, the group’s Fibre Business Openserve saw operating revenue decline by 2.7% over the period as legacy revenue declines hurt performance.

However, next-generation revenue increased by 6.9% to R4,526 million due to the 9.1% increase in fixed data revenue, underpinned by high-speed fibre broadband connectivity growth and a stable expansion across carrier services and enterprise connectivity.

Revenue for Telkom Consumer – the group’s fixed broadband business – grew by 1.4%, with the total external revenue from mobile operations growing by 4.1% to R11,035 million, driven by 5.8% growth in mobile service revenue.

BCX saw its revenue increase by 0.7% to R7,043 million, mainly due to the double-digit growth in the IT business, which was partially offset by legacy declines in the Converged Communications business.

Gyro’s mast and towers business Swiftnet continued to commercialise, mainly due to additional tenancies of the existing portfolio and ongoing equipment upgrades by mobile network operators to improve their capacity.

Although Gyro’s revenue from continuing customers grew by 6.8% to R499 million, total revenue was affected by terminations and reduced by 1.2% to R652 million.

Before releasing the results, the group said that it identified a preferred bidder for the disposal of Switnet – which Nedbank previously said was worth around R8.7 billion.

Outlook

“While we saw positive momentum in the current period, the increasingly challenging economic environment we operate in will continue to impact the performance across the entire telecommunications industry as we manage load shedding through prioritising alternative energy investments,” the group said.

“Despite the challenging macro-economic environment, our guidance for FY2024 remains unchanged. Group revenue and EBITDA are expected to grow at low to mid-single digits as we focus on driving the top line and harnessing cost savings to improve our profitability by FY2025.

The group added that it will continue to invest in infrastructure to allow for growth, with the capex-to-revenue ratio expected to be on the lower end of its 16% to 18% guidance for FY2024 – aligning with the group’s cautious approach to capex for the year.