Telkom shares leapt by 8% yesterday after the mobile operator said for the quarter ended December 31, 2022 it had grown its quarterly revenue by 2.3%, driven by continued growth in new-generation technologies and increased data consumption.
The group flagged that it was also on track to unlock value for its shareholders with a full or partial disposal of the mast and towers business of Swiftnet and the sale of a stake in Openserve.
The shares rose to an intra-day high of R36.94 on the JSE, having risen by 13.72% year to date.
The group flagged that top-line performance was resilient considering ongoing load shedding, pressure on consumers due to ongoing interest rate hikes, high energy and fuel prices, and other inflationary pressures on the cost of living.
In its trading update it said group revenue grew by 2.3% to R11 031 million largely driven by growth in active subscribers' mobile and fibre, increased data traffic, higher handset and equipment sales to retail as well as increased IT solutions/equipment to enterprise customers.
Earnings before interest, taxation, depreciation and amortisation (Ebitda) fell 13.5% to about R2.5 billion.
Group CEO Serame Taukobong said despite good top-line growth and the optimisation of roaming costs, the migration of legacy products to newer technologies, investment in post-paid, and the impact of power cuts put pressure on its costs, Ebitda and cash flows.
"The ongoing instability of electricity supply in South Africa saw accelerated load shedding continuing into the third quarter of the 2023 financial year, which impacted profitability as it inflated the cost base and had an impact on service revenue,“ the group said.
Load shedding had resulted in a year-on-year increase of more than R150 million additional costs for the quarter.
Telkom said it had focused on “offering attractive value propositions” in its mobile business, with mobile data traffic increasing by 25.6% and subscribers by 12.9% to 18.6 million. Mobile broadband customers are up 9.9% to 11.5 million, comprising almost 62% of active mobile customers.
Taukobong said Telkom’s mobile and broadband strategies continued to bear fruit.
“We saw good growth in broadband as our data-led, and connect-led strategies continued to drive growth in mobile and fibre subscribers along with data usage.
“Mobile broadband customers now comprise almost 62% of total active mobile subscribers, while Openserve’s open-access network gained traction as external channels advanced to contribute more than 30% of its total revenue,” he said.
The group revealed that it plans to raise R1 billion by selling qualifying device receivables to external financial institutions.
“The working capital investment in mobile handsets and post-paid cost of sales are immediate costs, with corresponding revenues recognised over 24 to 36 months and thereby do not immediately offset the upfront costs associated with growing our post-paid subscriber base,” Telkom said.
It said its value unlock strategy adopted to realise the intrinsic value of underlying business in the Telkom Group remained under way.
“Following the Board's in-principle approval to affirm and realise the value of Swiftnet through a full or partial disposal of the mast and towers business, a multi-party sales process commenced in late 2022 and offers are expected to be received during the course of March 2023. Telkom will evaluate the offers received and a further update will be provided in due course,” it said.
Following the legal separation of Openserve to a stand-alone entity, effective September 1, 2022, various initiatives were under way with the goal of realising value through the sale of a minority stake in the 100% owned Telkom subsidiary.
Telkom said it had been receiving a number of unsolicited approaches for this business and is currently undertaking a market sounding exercise to test the breadth of interest for this business. With adequate interest, a formal process would be launched by the end of the 2023 financial year, it said.
Looking ahead, the group warned that while it saw an uplift in the third quarter of the 2023 financial year revenue, the annual trend of declining profitability was expected to continue into the fourth quarter of the 2023 financial year (Q4 FY2023).
“We expect an overall weaker Q4 FY2023 relative to Q3 FY2023 impacted by the ongoing upfront investment in working capital, continued accelerated load shedding, and inflationary cost pressures.
“The upfront costs relating to cost-cutting initiatives outlined in the previous section will further put pressure on group profitability and free cash flow (FCF) for the Q4 FY2023 and in turn, for FY2023, with the related benefits only materialising in future years,” it said.
Meanwhile, Auctioneers Liquidity Services announced that two substantial commercial buildings in Gauteng and the Western Cape were among 50 further properties to be auctioned nationally on behalf of Telkom.
Liquid Services head of property Kim Faclier said: “We have helped Telkom dispose of its surplus assets for the last 10 years and have already sold well over 200 properties during this time, with total values approaching R750m.”
She said Telkom’s disposal of its surplus property was in line with changes in the company’s need for large office space and storage, following the progressive digitisation of its service.
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