Mobile data boom not yet igniting Telkom sales

Telkom’s latest annual results reveal growth of 80% in mobile data revenue and 69% in IT Business Services revenue, but overall revenue increased only 1%.

Telkom SA this week published its annual results for the year ended 31 March 2014, recording revenue growth of 1.1% for the year, despite growth of 80.2% in mobile data revenue and 69.3% in IT Business Services revenue.

It also reported a profit after tax from continuing operations of R1.577 billion, excluding the net curtailment gain in respect of the post-retirement medical aid liability and related tax benefit, which is a 5.6% increase from the prior period. Group EBITDA also improved 3.8% to R8.4 billion (2013: R8.1 billion).

Headline earnings per share from continuing operations, excluding once-off items, increased 35.1% to 388 cents from the previous year, while basic earnings per share increased to 285.2 cents from 268.5 cents.

Our efforts to turn Telkom around are starting to produce results. This process will continue to be our focus,” said Sipho Maseko, Group Chief Executive Officer at Telkom.

“We have managed to stabilise revenues through significant once-off items, which were carefully considered and form part of our strategic imperative to turn around the business and generate sustainable revenues.

In line with our guidance to stabilise revenues, we have achieved revenue growth of 1.1% for the year, confirming that we still face significant challenges largely as a result of the continued pressure on voice revenue, resulting from fixed-to-mobile substitution. We recorded promising growth of 80.2% in mobile data revenue and 69.3% in IT Business Services revenue.

Operating costs decreased 2.1%, which was achieved through lowering employee costs and lower bad debts, through improved credit vetting processes, and efficiencies gained on various cost management initiatives, including a reduction in marketing expenditure and lower inventory write offs.

Free cash flow remained strong at R1.2 billion, after capital investment of R6.5 billion, which increased 12.0%. This was due to a substantial investment in the upgrade of the Group’s network. The Group remains lowly geared, with net debt decreasing 0.8% to R2.1 billion, which will ensure Telkom remains in a solid position to fund its capital expenditure programme.

Our objective to further stabilise and grow revenue depends on effectively positioning our resources to drive value and achieving efficiencies across our operating cost base. This will require us to focus our capital expenditure on areas that generate satisfactory returns for our shareholders, and avoid unprofitable operations,” added Maseko.

The Group aims to successfully conclude the proposed MTN South Africa and Business Connexion transactions within the current financial year, enabling it to offer fully converged solutions to customers.

Telkom’s turnaround depends largely on improving customer service. While Telkom has managed to improve its ratings in various customer surveys, decisions must be guided by customers’ needs to successfully evolve the business further.

Going forward, Telkom expects to see continued pressure on fixed-line voice revenues, intensified by strong competition, a challenging macro-economic environment and effects of regulatory changes.

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