JOHANNESBURG - South Africa’s Telkom SA said on Tuesday its half-year profit slumped by 36%, driven down by a surge in finance costs and unfavourable foreign exchange shifts.
The company, 40% owned by the state, has spent billions of rand on its mobile business, which helped bolster performance last year but has driven up its debt burden. Net finance charges and fair value movements rose 87% in the first half, it said.
Telkom flagged earlier in November that it anticipated its profit to drop up to 40%. In the end, its headline earnings per share for the six months to Sept. 30 stood at 183.4 cents, versus 288 cents a year earlier.
Compared to a restated figure for the first half of 2018, Telkom’s HEPS dropped by 44%.
In its statement, the company emphasised its “solid revenue performance” despite a weak economic environment, driven by its mobile business, which grew revenues by 56.6%.
“Our mobile business remains the fastest growing business in the market with market share gains underpinned by our affordable broadband-led propositions, which resonate with our customers,” Telkom’s statement said.
Amid a drop in fixed-line customers, Telkom has been investing heavily in areas like mobile and fibre - in common with other African telcom groups as demand for internet speed and data surges with growing smartphone usage.
But a 30.9% increase in cash paid for capital expenditure pulled its adjusted free cash flow into negative territory, at minus 1.3 million rand ($87,342.70).
It also adjusted its net debt to EBITDA ratio guidance to 1.5 times, after it increased above the previous guidance level to 1.4 times - a rise it said was down to the adoption of new accounting standards as well as funding its mobile infrastructure rollout.
While the company declared an interim dividend of 71.5 cents per share, it warned its capital requirements were likely to impact the current dividend policy.
“In considering the dividend policy we will prioritise our capital investment program, maintain an investment grade credit rating and consider our cash position,” its statement said.