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Trading and operational update for the three months ended 30 June 2015
Telkom SA SOC Limited
Registration number 1991/005476/30)
JSE share code: TKG
ISIN: ZAE000044897
("Telkom" or “the company”)
Trading and operational update for the three months ended 30 June 2015
Sipho Maseko Telkom Group CEO
“Our net revenue for the first quarter of our financial year grew 1.7 percent in a difficult operating
environment during which there were significant pricing pressures. We continued to focus on
data and mobile revenues, which remain the key drivers of our revenue growth. Our capital
expenditure amounted to approximately R730 million, which is 15.3 percent higher than our
capital expenditure for the same period in 2014. The main focus of this investment was on an
accelerated fibre roll out and increased investment in our Mobile and LTE networks, providing
wider coverage and faster connection speeds.
During the second year of our multi-year turnaround strategy Telkom has been able to deliver
cost savings through exiting of legacy contracts, major management restructuring and achieving
of back office operating efficiencies. We remain committed to our transformation plan and in
order to achieve it going forward we will be focusing on further outsourcing, internal process
efficiency improvements and a sustainable reduction in operating costs through new customer
delivery models.
The Competition Commission has made a recommendation to the Competition Tribunal that they
approve the acquisition of BCX, subject to certain conditions. The matter is currently being heard
by the Competition Tribunal and should be concluded during August 2015.
During the first quarter our fixed voice usage revenue continued to decline as expected.
Competitive pricing and customer demand patterns affected our Enterprise revenues as well as
revenue from leased lines. Marginal revenue growth from our Consumer and the Small and
Medium Business customers was driven by an increase in ADSL line subscribers and higher
ARPUs, despite a reduction in voice lines. We have responded to the decline in voice usage and
leased line revenues by migrating our customers to bundled value service offerings, as well as to
higher capacity data connectivity links and we have seen early successes in this regard.
Our Mobile business continues to grow and we remain confident of achieving break-even during
this financial year.”
Salient features
- Net revenue up 1.7 percent to approximately R6.5 billion
- Mobile net revenue up 68.5 percent to approximately R350 million
- Active mobile subscribers increased 11.7% to 2 142 890 with a blended ARPU of
R82.87
- ADSL subscribers increased 6.3 percent to 1 014 562
- IT business services revenue increased 18.7 percent
- Fixed-line usage revenue has declined 13.7 percent
- Fixed-line subscriptions revenue increased 9.2 percent
- 14.5 percent decline in leased line and higher capacity connectivity revenue
- 1 133 958 homes passed with fibre to the curb
- 34 707 homes passed with fibre
- 31.5 percent increase in ADSL terabyte traffic volumes.
Group revenue
Net operating revenue has increased 1.7 percent compared to the comparative period as a result
of the strong performance by mobile on data revenue and higher fixed-line subscription revenue.
This was partly offset by the continuing decline in fixed-line voice usage, due to mobile
substitution, and leased line revenues, as a result of customers migrating to newer and cheaper
technologies.
Fixed-line
Net Revenue
Net revenue from our Enterprise business was flat with our Consumer business posting low
single digit growth of 2.7 percent, mainly as a result of increased subscription revenue due to
tariff increases for residential and business line rentals. Net revenue in our Wholesale business
was 2.8 percent down quarter-on-quarter due to tariff reductions and customers migrating to
higher capacity but lower priced leased lines, which was somewhat offset by good growth in
ADSL revenue.
Fixed-line voice and interconnection revenue
Fixed-line voice and interconnection revenue was down approximately R320 million or
15.2 percent quarter on quarter
Fixed-line voice usage revenue declined by 13.7 percent quarter-on-quarter. This is largely as a
result of a 5.3 percent decline in the number of voice lines to 3,394 million.
The migration of our customers to bundled and enhanced value offerings is intended to mitigate
the declining trend in fixed voice usage. We have seen some traction in the first quarter with a
five percent increase in bundled and calling plan subscriptions.
Interconnection revenues have declined by 22.7 percent as a result of lower volumes on mobile
international outgoing traffic with a corresponding decrease in payments to international
operators.
Fixed-line subscription revenue
Fixed-line subscription revenue increased 9.2 percent as a result of the tariff increases
mentioned previously and an increase in calling plan and bundled packages as we gain traction
in migrating our customers to bundled offerings.
Fixed-line data revenue
Fixed-line data revenue was down approximately R60 million or 2% percent quarter-on-quarter.
Leased lines
Our planned migration of customers from legacy technology links to lower priced Metro Ethernet
and high capacity broadband links has seen a reduction in data connectivity revenue and a
slowdown in the impact of self-provisioning evident over the quarter. Revenue from leased lines
and high capacity broadband links has reduced 14.5 percent quarter-on-quarter.
ADSL
We achieved good growth of 4.8 percent in ADSL customers in our Consumer business. Our
Wholesale business saw promising growth of 19.6 percent in ADSL subscribers and a 15.9
percent improvement in dismantlements. The ADSL subscriber growth was the main contributor
to an 18.7 percent increase in Wholesale ADSL revenue and an approximately seven percent
growth in Wholesale data connectivity revenue. Churn continues to be a focus area.
Excluding the revenue decline from leased lines, other fixed-line data revenue increased 2.8
percent. While volumes have increased, the impact of competitive pressures on pricing has
continued to limit fixed-line data revenue growth. Data volumes have increased 31.5 percent
quarter-on-quarter.
IT Business service revenue
IT Business service revenue increased 18.7 percent as we realised our strategic objective of
growing our ICT revenues. The investment into sales and product development has resulted in
an increased customer base translating into higher revenue.
Telkom Mobile
Telkom Mobile incurred a loss of approximately R30 million for the first quarter of the 2016
financial year. This is an 87.9 percent improvement compared to the prior comparative period.
We are progressing in line with our expectations.
Mobile net revenue increased 68.5 percent to approximately R350 million compared to the same
period last year. The increase is attributable to a 68.7 percent increase in mobile data revenue,
an increase in revenue generating subscribers and higher ARPU.
The overall subscriber base has grown 11.7 percent to 2 142 890 revenue-generating customers.
Post-paid customers grew by 61.9 percent while prepaid customers decreased by 1.3 percent.
The reduction in prepaid customers was due to a clean-up of the revenue-generating subscriber
base. The blended ARPU as at 30 June 2015 was R82.87, an increase of 17.8 percent
compared to 30 June 2014.
Profit on sale of assets
The sale of non-core properties remains on track and accounting recognition is subject to
transfer and registration. Other income increased 22.4 percent quarter-on-quarter.
Depreciation
Depreciation is flat quarter-on-quarter, as we continually assess the useful lives of our asset
base given advancements in technology and strategic intent.
Taxation
Staff restructuring costs provided at 31 March 2015 and paid in the first quarter resulted in a
reduction in the tax line for the quarter. We have not assessed or recognised further deferred tax
assets and remain focused on addressing the outstanding uncertain tax position by 31 March
2016.
Group capital expenditure
Our capital expenditure for the quarter, at approximately R730 million, is 15.3 percent higher than
the first quarter of the 2015 financial year. We continued our measured and commercial
approach to capital expenditure focusing on the growth areas of our business.
Capital expenditure was deployed to the following focus areas:
- infrastructure to support the growth in data services
- continuation of the network transformation programme to provide high-speed ADSL
service and a more aggressive fibre roll out in selected areas
- the Mobile programme, with a focus on LTE growth
- the relocation of our head office to Centurion.
Group funding
We have repaid the TL15 bond of R1.1 billion which matured during quarter from available cash.
We remain very lowly geared with net debt to EBITDA at 0.01 times. Subsequent to 30 June we
paid a dividend of R1.3 billion and approximately R1.1 billion in voluntary early retirement and
severance packages.
Our low gearing positions us well for the funding of the next phase of our turnaround efforts.
Business transformation programme
The exit from our Pretoria head office, and subsequent relocation to our Centurion campus, has
been completed and is expected to reduce utility cost, depreciation and finance charges. We are
in the process of negotiating an exit from our lease liability.
Another element of our turnaround strategy is the transformation and alignment of our workforce
as we seek to reduce our employee cost to revenue ratio to align with best practice.
The first quarter has seen a delay in our planned restructuring initiatives following a court order to
halt our section 189 process. We have subsequently offered voluntary severance and retirement
packages and to date have approved 2 399 voluntary severance and retirement packages at a
cost of approximately R 1.1 billion. On 31 July 2015, 2 136 of these employees will exit the
business, with delayed exit dates for the remainder of the employees.
This trading and operational update has neither been reviewed nor reported on by the company’s
external auditors.
Centurion
31 July 2015
Sponsor:
The Standard Bank of South Africa Limited
Special note regarding forward-looking statements
Many of the statements included in this document, as well as verbal statements that may be made by us or by officers, directors or employees
acting on our behalf, constitute or are based on forward-looking statements.
All statements, other than statements of historical facts, including, among others, statements regarding our convergence and other strategies,
future financial position and plans, objectives, capital expenditures, projected costs and anticipated cost savings and financing plans, as well as
projected levels of growth in the communications market, are forward-looking statements.
These forward-looking statements involve a number of known and unknown risks, uncertainties and other factors that could cause our actual
results and outcomes to be materially different from historical results or from any future results expressed or implied by such forward-looking
statements. Factors that could cause our actual results or outcomes to differ materially from our expectations, include, but are not limited to those
risks identified in Telkom’s most recent annual report, which is available on Telkom’s website at www.telkom.co.za/ir.
We caution you not to place undue reliance on these forward-looking statements. All written and verbal forward-looking statements attributable to
us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Moreover, unless we are required by law to
update these statements, we will not necessarily update any of these statements after the date of this document, so that they conform either to
the actual results or to changes in our expectations.
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