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Telkom’s shares slide as its annual revenue dips amid global supply constraints

TELKOM managed to hike its active mobile subscribers by 10.5 percent to 16.9 million. Photo, Simphiwe Mbokazi.

TELKOM managed to hike its active mobile subscribers by 10.5 percent to 16.9 million. Photo, Simphiwe Mbokazi.

Published Jun 15, 2022

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Telkom’s share price took an almost 9 percent dip on the JSE yesterday following the release of its annual financial results, posting a decline in revenue and profit due to global supply chain challenges and chip shortages.

In late afternoon trade the share was down 8.75 percent to R36.71, the share down 14.4 percent over 12 months.

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In an interview, Telkom chief executive Serame Taukobong said the results reflected the challenging market conditions the company was facing.

The mobile operator for the year ended March 2022 recorded revenue of R42.76 billion, 1.1 percent lower than the previous year. Profit also decreased from R2.6bn to R2.4bn. However headline earnings per share increased by 2.5 percent.

Earnings before interest, tax, and amortisation (Ebitda) were down by 0.5 percent, with a margin expanded to 27.9 percent.

But Telkom managed to hike its active mobile subscribers by 10.5 percent to 16.9 million. This as its mobile broadband customers were at 10.7 million, homes passed with fibre was up 52.7 percent, while the fibre-to-the-home connectivity rate was at 46.3 percent.

Openserve continued with its growth trajectory in the fibre market, increasing homes passed with fibre by 52.7 percent and homes connected with fibre by 38.4 percent.

But BCX, the group’s ICT subsidiary, was negatively affected by global supply chain constraints and shortages of semiconductor chips.

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Despite the decline in fixed lines in service, fixed-line broadband average revenue per user (Arpu), a closely watched industry metric, increased by 10.5 percent to R273.92.

Telkom is in year two of a three-year dividend suspension period. The dividend is expected to be reinstated in the 2023 financial year.

Taukobong said: “If I look at Openserve, we are encouraged that we are holding steady, the revenue remaining flat. With BCX we are still not out of the woods and we are looking at how do we decrease the challenge in that perspective. (With) Mobile, since the business has a flexible competitive nature, we want to see how we can make sure we remain competitive.“

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Taukobong said what was key was the operational efficiency Telkom conducted, despite the challenging market, which allowed it to still have an Ebidta of 27.9 percent.

He said the decline of the legacy fixed-line business meant Telkom would have to move the customer to the next possible best technology.

“From our business perspective, the asset is the customer, not the technology. What is important for us is to retain the customer at all costs. We need to move them to the next-generation technology. It is important that we either migrate them to fibre, or to LTE (long-term evolution) to retain the customer at all costs,” he said.

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Taukobong said Telkom’s balance sheet remained solid.

“We are fairly comfortable with our balance sheet. It is a firm balance sheet that can open us for opportunities if we seek to raise more equity to fund,” he said.

Looking forward, Taukobong said: “I think what is important to us is that the journey we have taken to unlock value is now at a point of execution. Our focus now is going to be on external revenue growth, underpinned by a hunger for execution.”

Umthombo equity analyst Nomtha Ngumbela said the share price came under immense pressure as investors digested the negative free cash-flow result.

“Management noted an R1bn capex overhang from the fourth quarter of 2021, the cash outflow from the spectrum purchase and the impact of handset purchases of R2bn on a gross basis on working capital. This is also concerning given that management indicated during the half-year presentation that they would be in a positive free cash-flow position,” she said.

Ngumbela said Telkom’s headline earnings were in line with consensus expectations with the market being guided that there would be an impact from write-offs and impairments.

“From a topline perspective, I was disappointed by the muted growth during the year of Openserve despite the capex expenditure being put into the business. Management did indicate that the segment should revert to growth in 2023 and they continue to see uptake for next-generation services, which is indeed a positive accomplishment.

“It is encouraging that the legal separation processing is moving ahead, and we expect to hear within the year of the progress being made. If management is able to extract value from this asset, opportunities for collaboration with external local and foreign investors are very likely,” she said.

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