Wrap Text
Telkom SA SOC Limited
Registration number 1991/005476/30
JSE share code: TKG
JSE bond code: BITEL
ISIN: ZAE000044897
("Telkom" or the "Group")
Trading update for the first quarter ended 30 June 2024
Q1 FY2025 HIGHLIGHTS
- Group revenue up 3.9% to R10 907 million
- Group next generation ("NGN") revenue up 7.0%
- Group EBITDA up 24.1% to R2 778 million*
- Telkom Consumer performance driven by growth in value-compelling data offerings
- Mobile revenue up 5.3% to R5 737 million
- Mobile service revenue up 9.5%
- Mobile data revenue up 12.9%
- Mobile EBITDA up 35.7% to R1 543 million
- Openserve fixed data NGN revenue up 7.1%
- EBITDA up 16.8% to R1 023 million
- Market-leading fibre-to-the-home ("FTTH") connectivity rate of 49%
- BCX revenue up 2.4% to R3 175 million
- IT revenue up 7.1%
- Swiftnet revenue up 5.2%
- R161 million proceeds from non-core property disposals
* EBITDA growth for Q1 is on the back of a stronger Q1 FY2025 compared to the prior comparative
period. The growth is expected to moderate for the full year driven by a higher base from the second
quarter to the end of FY2024.
Group Chief Executive Officer ' Serame Taukobong commented:
"Telkom had a good start to the financial year with pleasing performance on the top line benefiting from
our data-led strategy and compelling value propositions. Our next generation revenue streams continued
their positive momentum and grew by R576 million, an increase of 7.0%. NGN revenues now comprise
80.7% of Group revenue.
NGN broadband offerings, enabled by our ongoing capital investment in our mobile and fibre networks;
have positioned Telkom advantageously as the best value mobile network while the connect-led strategy
for our fibre network further improved the market-leading home connection rate to 49.0% for the quarter.
These capex investments give our networks the capacity to accommodate and handle high data traffic
demands from our retail and enterprise customers, on already existing mobile and fibre infrastructure.
We are pleased that the Group expanded its EBITDA margin by 2.3 percentage points (ppts) from 31
March 2024 driven by top line growth and stringent cost management, despite inflation causing upward
pressure on costs as our ongoing cost optimisation initiatives yield positive results. We continue to focus
on cost containment while simultaneously monetising our networks by adding to our mobile sites and
expanding fibre footprint where these investments contribute to top line growth and overall profitability."
STRONG FINANCIAL PERFORMANCE DRIVEN BY SOLID SUBSCRIBER GROWTH AND UPTAKE OF NEXT GENERATION DATA OFFERINGS
Telkom achieved strong quarterly results for the three months ended 30 June 2024 in weak economic
conditions and a challenging trading environment. Group revenue grew within guidance and advanced
by 3.9% to R10 907 million year-on-year (y-o-y) driven by growth in demand for our NGN offerings. Key
contributors to strong NGN growth include Mobile service revenue growth of 9.5%, fixed data NGN
revenue growth of 7.1% and information technology revenue growth of 10.3%.
We saw continued momentum in demand for data traffic and mobile with fixed traffic growing 25.8% and
33.0%, respectively y-o-y. Our mobile subscribers advanced by 14.6% and surpassed the 21 million mark
with a stable pre-paid ARPU and post-paid base, while homes connected with fibre grew by strong double
digits, at 19.5% y-o-y.
These key performance drivers propelled NGN revenue growth, supported by reduced direct costs
resulting from ongoing cost optimisation projects. This led to EBITDA growth of 24.1%, advancing
EBITDA to R2 778 million with the Group EBITDA margin improving to 25.5%, also benefiting from a
stabilised electricity supply in South Africa during the quarter.
OPERATIONAL REVIEWS
Telkom Consumer's improved performance driven by our data-led strategy
Telkom Consumer recorded a 2.6% increase in revenue to R6 589 million, in a challenging competitive
landscape. Our overall performance was on the back of a data-centric approach stemming from both the
Mobile business and the expansion of our fibre offerings.
Mobile business revenue growth was propelled by a 9.5% increase in external mobile service revenue to
R4 996 million, with total external revenue increasing by 5.3% to R5 737 million. This growth was driven
by our continuous delivery of innovative and value-oriented offerings, which significantly stimulated data
consumption. Increasingly, consumers sought value on our personalised pricing platform, Mo'Nice, which
now accounts for 35.4% of total service revenue.
The driving force behind our performance stems from the strengthening of our subscriber base, which
rose by 14.6% to 21.2 million total mobile subscribers, characterised by a blended ARPU of R81 (Q1
FY2024: R83). Our post-paid subscriber base remains steady at approximately 3.0 million, with an ARPU
of R183 (Q1 FY2024: R183), while the pre-paid segment experienced an increase of 17.4% to 18.2 million
subscribers with an ARPU of R62 (Q1 FY2024: R63).
Our data-led strategy has at its core the provision of unparalleled customer value proposition, where we
experienced a 25.8% surge in mobile data traffic amounting to 414 petabytes. This growth was bolstered
by a 15.1% increase in mobile broadband subscribers, to 13.5 million (comprising 63.5% of total
subscribers). As a result, our mobile data revenue had a solid growth of 12.9%. We experienced an 8.0%
increase in the fibre subscriber base, supported by a 12.5% ARPU growth resulting in revenue from fibre
growing by 25.1%.
Telkom Consumer EBITDA increased by 28.4% to reach R1 201 million, on the back of solid revenue
growth and prudent cost containment initiatives. These drivers led to an increase in the EBITDA margin
of 3.6 ppts. Mobile EBITDA in turn grew by 35.7% to R1 543 million on the back of strong revenue growth,
particularly in the pre-paid domain and reduced load shedding costs. As a result, the Mobile EBITDA
margin grew by 6.0 ppts y-o-y.
We are still experiencing robust growth of our "beyond connectivity" services, with revenue holding at
R407.5 million. A significant contributor to this growth is the airtime advance product, which increased
32.3% y-o-y and now represents 32.9% of our total recharges.
Capital expenditure allowed for enhanced capacity and coverage across our network of 7 778 base
stations, underscoring our commitment to expand and strengthen mobile network infrastructure.
Openserve maintains momentum in next generation expansion
Openserve's NGN products and services maintained their upward trajectory, showing continued growth
with fixed data NGN revenue increasing by 7.1% y-o-y. As Openserve strives to differentiate its product
portfolio and strengthen its external wholesale channels, its contribution to Telkom's overall revenue grew
by 9.2% to R1 179 million. These channels experienced strong NGN revenue growth of 9.0% y-o-y,
resulting in NGN connectivity now representing more than 94% of Openserve's overall external wholesale
revenue.
While we see ongoing growth in NGN services, the overall revenue declined by 2.4% to R3 056 million
y-o-y, primarily driven by a decline of 28.4% (R188 million) in voice and legacy revenue.
Bolstered by the strategic imperative of building an extensive network, homes passed increased by 13.4%
to 1 256 603 homes. Openserve's connect-led strategy continued to deliver positive results with an
increase of 19.5% in the number of homes connected to 615 430, resulting in a connectivity rate of 49.0%,
which continues to be market leading. With the increase in demand for connectivity and high-speed
broadband, we continued to see growth in data consumption as it advanced by 33.0% to 681 petabytes
for the quarter. We are confident that the capital investment to modernise and transform our network will
continue enabling us to connect more homes as well as cater for higher bandwidth requirements from
our customers.
Significant strides were made in delivering excellence in customer experience through innovation and the
automation of processes that allow customers and employees to have a seamless experience. The
Interaction Net Promotor Score (iNPS) was at 72.3, a 3.3% increase y-o-y, while network reliability
remained at the forefront of the industry with exceptional performance across access, transport and core
network layers achieving uptime of 99.95%, 99.91% and 99.99% respectively.
In addition to our network consolidation and simplification strategy, Openserve continued to execute on
improved green energy mix through the deployment of lithium-ion batteries and solar energy solutions
together with an improved diesel delivery model. These initiatives, coupled with the strategic upgrade of
technologies and infrastructure at key central office locations along with the improved stability of the
electricity grid, resulted in a decrease of 84.6% (R128 million) in diesel spend to R23 million for the
quarter. These cost efficiency initiatives contributed to an increase of 16.8% in EBITDA to R1 023 million
and a 5.5 ppts y-o-y growth in EBITDA margin to 33.5%.
Openserve remains steadfast in its commitment to execute on its strategy, guided by a well-defined
strategic plan. Our strategic execution remains strong, emphasising our transformation journey as well
as improved customer experience through focused investments in infrastructure and essential
capabilities.
BCX revenue up supported by growth in the IT business
BCX revenue increased by 2.4% to R3 175 million, on the back of strong performance in the IT Hardware
and Software business.
The IT business grew reported revenue by 7.1% to R1 790 million, primarily driven by the continued over-
performance of the software and hardware business. The IT hardware and software business saw
revenue growth of 22.5% y-o-y, driven by an increase in new business and clearing of backlog orders.
While the low-margin hardware and software business supports revenue growth, it is done strategically
to allow BCX to gain access to a wider client base to enable the selling of high-margin IT services in order
to improve product mix. The growth in the IT hardware and software business is primarily due to the
growth in the local business unit with an increase of 29.8%. The IT Services revenue was stable at R1
117 million.
The Converged Communications business revenue declined by 3.2% to R1 385 million driven by the
continued migration from legacy services. Legacy telephone lines continued to decline and resulted in
voice revenue declines of 14.6% y-o-y, in line with our migration strategy. Data connectivity revenue,
which contributes 33.9% to the Converged Communications revenue, has reached an inflection point
with 78.2% of revenue comprising NGN revenue.
EBITDA declined by 8.0% to R253 million y-o-y driven by the impact of revenue growth from low-margin
hardware and software business along with converged communications legacy declines. This was offset
by the decline in impairment of receivables as collections improved. EBITDA margin decreased by
0.9 ppts y-o-y resulting in a margin of 8.0% for the quarter.
Swiftnet continued to grow, with an increased focus on Power-as-a-Service
Swiftnet continued to augment and commercialise the business by adapting to changing market
conditions and identifying additional opportunities for revenue streams, whilst maintaining strong EBITDA
margins.
The tower build program remained on track with four towers and one In-Building Solution (IBS) site being
constructed during the quarter.
Swiftnet's revenue during the first quarter increased by 5.2% y-o-y to R343 million, with revenue from
growing customers increasing by 14.5% to R285 million underpinned by inflationary escalations, new
tenancies, 5G expansion, antennae upgrades as well as new tower builds and IBS, reflecting our
customers' focus on network improvement and modernisation.
During the quarter, Swiftnet's EBITDA increased by 7.7% to R252 million y-o-y, at a strong EBITDA
margin of 73.5%.
We remain focused on providing value-add offerings to our customers to meet their evolving needs. The
planned roll-out of Power-as-a-Service (PaaS) is in execution phase and on track, with 141 PaaS
solutions built and connected to customers during the first quarter of the financial year. We will continue
the PaaS rollouts at scale during the remainder of the financial year. PaaS has started to generate
revenue on sites connected to customers. We expect this service to contribute significantly to revenue
growth in the current financial year.
R161 million proceeds from disposals of non-core property
Gyro continued to rationalise the property portfolio through accelerated disposal and transfer of properties
that are no longer core for the Group's operational requirements. This ongoing process will continuously
reduce the property footprint, optimise property operating costs and realise cash for Telkom.
We began the year with 42 properties with a sales value of R287 million undergoing the conveyancing
process, with a target to transfer them during the financial year. From these, we successfully transferred
19 properties, and realised sales proceeds of R161 million in the first quarter.
The first auction for additional properties approved during the quarter was completed in June, resulting
in sale offers for nine properties to the value of R33 million. Signature of sale agreements is in progress,
ahead of commencement of the conveyancing process. Gyro plans to dispose of more non-core
properties (including those previously earmarked for property development) during the rest of the year.
GROUP DEBT ACTIVELY MANAGED AND DEBT PROFILE CONTINUES TO IMPROVE
Telkom recently raised funds by means of a public bond auction in the debt capital markets and
successfully issued two bond instruments with 3-year and 5-year tenors raising R345 million and R405
million, respectively. The R750 million will refinance maturing debt and address upcoming maturities in
FY2025. The cost of the issuance was achieved at competitive pricing, improving the Group's debt
maturity profile and liquidity. We consider this an affirmation of the Group's outlook by local debt capital
markets, that will continue to be a source for refinancing bond maturities.
TELKOM CREDIT RATING AFFIRMED BY MOODY'S
On 11 July 2024 Moody's affirmed Telkom's corporate family rating as Ba2 and the national scale rating
as Aa2.za with a stable outlook. According to Moody's, these ratings are supported by Telkom's leading
market position in South Africa's fixed-line business as operator of the largest fibre network in the country,
adequate financial policies along with the expectation that Telkom's credit metrics will strengthen over
the coming 12-18 months.
SWIFTNET DISPOSAL UPDATE
Shareholder approval was obtained at a general meeting of shareholders held on 24 May 2024 for the
sale of the masts and towers business housed in Swiftnet, for R6.75 billion, to a consortium comprising
an infrastructure fund managed by a subsidiary of Actis LLP and an infrastructure vehicle owned by Royal
Bafokeng Holdings, the B-BBEE partner.
On 01 August 2024, the Competition Commission of South Africa recommended that the Competition
Tribunal of South Africa ("Tribunal") approve the proposed transaction with conditions. The proposed
transaction will now be referred to the Tribunal for its decision.
The regulatory approvals required from the Tribunal and the Independent Communications Authority of
South Africa (ICASA) are still in progress.
REGULATORY AND LEGAL MATTERS
Licensing of radio frequency spectrum delayed
ICASA indicated on 9 May 2024 that the licensing of additional high demand spectrum will be delayed to
2025/2026. This should allow sufficient time for the Authority to consider all relevant issues in designing
the licence process, including consideration of competition and the effect of the spectrum arrangements
between licensees. A mobile network operator launched a review application pertaining to the approval
by ICASA of spectrum sharing/pooling arrangements between other mobile network operators, which
may also have a bearing on the design of the upcoming spectrum licensing process.
Review of call termination rates by ICASA ongoing
Having begun its review of call termination rates in May 2021, ICASA published the Draft Call Termination
Regulations on 15 March 2024. Telkom provided its written inputs on the proposed rates and costing
methodology. This was followed by public hearings at the ICASA offices on 13 June 2024. Telkom looks
forward to the publication of the final regulations and trusts that these will facilitate pro-competitive
outcomes in the voice market.
SIU matter ' High Court Judgment setting aside Proclamation being appealed
On 19 July 2023, the Pretoria High Court handed down judgment setting aside Presidential Proclamation
49 of 2022 (the "Proclamation"). The Proclamation gave the Special Investigating Unit ("SIU") authority
to investigate various historical matters including Telkom's contracting for network and advisory services,
and the disposal of former Telkom subsidiaries. The Pretoria High Court had declared the Proclamation
unconstitutional, invalid and of no force or effect and awarded costs to Telkom.
On 11 December 2023, the High Court granted both the President and the SIU leave to appeal to the
Supreme Court of Appeal. The State Attorney is progressing the appeal, and on 21 June 2024 Telkom
received an application for condonation of the late filing of the SIU's Notice of Appeal. The Supreme
Court of Appeal subsequently issued a directive in terms of which it confirmed lodgement of the Notice
of Appeal and indicated that the record of High Court proceedings must be filed by 27 September 2024.
The matter is pending before the Supreme Court of Appeal, and Telkom will continue with steps to uphold
the High Court order in its favour.
The quarterly information contained in this trading update has not been reviewed or reported on by
Telkom's external auditor. All numbers and percentage growth rates refer to the quarter ended 30 June
2024 compared to the quarter ended 30 June 2023, unless otherwise stated.
TELKOM MANAGEMENT TO HOST MARKET UPDATE CONFERENCE CALL
Management will host a call for the investment community on Monday, 5 August 2024 at 16h00 South
African Standard Time (UTC+2) to go through the trading update and conduct a Q&A session. Dial-in
details will be made available on the Group website https://group.telkom.co.za/ir/overview.html.
Centurion
5 August 2024
Sponsor
Nedbank Corporate and Investment Banking, a division of Nedbank Limited
QUARTERLY FINANCIAL INFORMATION
The financial information in the table below has not been reviewed or reported on by Telkom's external
auditor.
Restated
(R'm) Q1 FY2025 Q4 FY2024 Q3 FY2024 Q2 FY2024 Q1 FY2024
June March December September June
2024 2024 2023 2023 2023
Group revenue(1) 10 907 10 791 11 093 10 845 10 501
- NGN 8 801 8 665 8 889 8 577 8 225
- Traditional & other 2 106 2 126 2 204 2 268 2 276
Group EBITDA - reported (total
2 778 2 539 2 477 2 786 2 239
operations) %(1)
Group EBITDA margin - reported
25.5% 23.2% 22.3% 25.7% 21.3%
(total operations) %(1)
Group capex 1 711 1 795 1 196 1 990 1 153
REVENUE BREAKDOWN
Mobile 5 737 5 591 5 957 5 587 5 448
Mobile voice and subscriptions 1 044 1 026 1 092 1 038 1 044
Mobile interconnection 125 134 145 119 128
Mobile data 3 827 3 647 3 689 3 575 3 389
Mobile handset and equipment 668 714 960 765 804
Significant financing component 73 70 71 90 83
Fixed 3 356 3 410 3 324 3 398 3 389
Data 2 111 2 090 2 078 2 060 2 062
Data connectivity 1 658 1 627 1 602 1 583 1 576
Internet access and related
333 345 358 356 359
services
Managed data network services 119 117 117 121 126
Multimedia services 1 1 1 - 1
Voice and subscription 664 701 724 796 846
Usage 256 284 274 303 324
Subscriptions 408 417 450 493 522
Interconnection 57 65 63 61 58
Fixed-line domestic 35 37 35 34 36
Fixed-line international 22 28 28 27 22
Customer premises equipment
323 339 279 306 259
sales and rentals
Sales 145 93 83 91 67
Rentals 178 246 196 215 192
Insurance service revenue 72 72 74 73 62
Other revenue 129 143 106 102 102
Information technology(1) 1 572 1 528 1 575 1 612 1 425
Information technology service
656 581 696 690 673
solutions1
Application solutions 241 253 225 224 236
IT hardware and software(1) 633 612 615 652 473
Industrial technologies 29 67 25 24 30
Significant financing component 13 15 14 22 13
Other 242 262 237 248 239
Yep 34 53 46 58 44
Gyro 208 209 191 190 195
Total(1) 10 907 10 791 11 093 10 845 10 501
1) The FY2024 historical quarterly revenues for BCX were restated in accordance with IFRS15. Historical quarterly
revenues for Group revenue were restated accordingly.
Quarterly information (Business unit stand-alone view)
Restated
(R'm) Q1 FY2025 Q4 FY2024 Q3 FY2024 Q2 FY2024 Q1 FY2024
June March December September June
Revenue 2024 2024 2023 2023 2023
Telkom Consumer 6 589 6 470 6 875 6 560 6 424
BCX(1) 3 175 3 287 3 225 3 301 3 102
Openserve 3 056 3 130 3 120 3 130 3 131
Swiftnet 343 336 333 326 326
EBITDA
Telkom Consumer 1 201 1 113 983 1 062 935
BCX 253 239 322 458 275
Openserve 1 023 930 1 014 1 114 876
Swiftnet 252 256 246 254 234
EBITDA margin (%)
Telkom Consumer 18.2% 17.2% 14.3% 16.2% 14.6%
BCX(1) 8.0% 7.3% 10.0% 13.9% 8.9%
Openserve 33.5% 29.7% 32.5% 35.6% 28.0%
Swiftnet 73.5% 76.2% 73.9% 77.9% 71.8%
Mobile service revenue (external) 4 996 4 807 4 926 4 732 4 561
Mobile EBITDA margin 26.8% 24.6% 20.0% 23.5% 20.8%
1) The FY2024 historical quarterly revenues for BCX were restated in accordance with IFRS15. Historical
quarterly revenues for Group revenue were restated accordingly.
Quarterly operational information
Q1 FY2025 Q4 FY2024 Q3 FY2024 Q2 FY2024 Q1 FY2024
June March December September June
2024 2024 2023 2023 2023
Broadband subscribers 14 020 599 13 295 611 13 300 371 12 749 692 12 255 546
Fixed broadband subscribers 553 869 554 953 556 965 554 809 555 170
Mobile broadband subscribers 13 466 730 12 740 658 12 743 406 12 194 883 11 700 376
Active mobile subscribers 21 213 647 20 438 983 19 737 370 18 286 160 18 505 103
Pre-paid subscribers 18 242 602 17 493 045 16 793 495 15 320 566 15 538 892
Post-paid subscribers 2 971 045 2 945 938 2 943 875 2 965 594 2 966 211
Mobile blended ARPU (rand) 80.53 84.10 85.60 84.59 83.12
Pre-paid ARPU 61.99 64.86 65.90 64.40 62.60
Post-paid ARPU 183.05 180.48 181.75 182.41 182.66
Traffic
Fixed broadband (petabytes) 681 614 612 569 512
Mobile broadband (petabytes) 414 371 370 347 329
Total fixed-line traffic (millions of
955 995 1 001 1 033 1 060
minutes)
Network
Homes passed with fibre 1 256 603 1 217 110 1 185 623 1 158 761 1 107 794
Homes connected with fibre 615 430 590 527 567 350 542 598 515 201
Fibre connectivity rate (%) 49.0% 48.5% 47.9% 46.8% 46.5%
Mobile sites integrated 7 778 7 738 7 721 7 684 7 644
Forward looking statements
Certain financial information presented in this trading update announcement may constitute forward
looking statements.
All statements, other than statements of historical facts, including, among others, statements regarding
our strategy; future financial position and plans; objectives; capital expenditures ("capex"); projected costs
and anticipated cost savings and financing plans; as well as projected levels of growth in the
communications market, are forward-looking statements. Forward-looking statements can generally be
identified by terminology such as "may", "will", "should", "expect", "envisage", "intend", "plan", "project",
"estimate", "anticipate", "believe", "hope", "can", "is designed to" or similar phrases. However, the absence
of such words does not necessarily mean a statement is not forward looking.
Forward-looking statements involve several 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 integrated report which is available at
https://group.telkom.co.za/ir/overview.html.
Telkom cautions readers not to place undue reliance on these forward-looking statements. All written and
verbal forward-looking statements attributable to Telkom, or persons acting on Telkom's 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.
Date: 05-08-2024 07:30:00
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