Telkom falls over 5% on ‘flat’ full-year earnings

The share price of JSE-listed telecommunications giant Telkom fell more than 5% on Tuesday, following the group releasing a lacklustre set of annual results.

Telkom reported a 1.1% decline in revenue, to R42.8 billion, for the year ended 31 March 2022. Its Ebitda (earnings before interest, taxes, depreciation, amortization) came in “flat” at 0.5%, despite the group noting that its ‘Ebitda margin’ expanded to 27.9%.

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At around 11h00, the group’s share price traded 5.5% weaker at R38.01 a share. It regained some lost ground after trading more than 7% down in early morning trade on the JSE.

Notwithstanding the decline in revenue, the group posted a 2.5% increase in headline earnings per share (Heps) and a 1.4% rise in base erosion and profit shifting for FY2022.

“The year was characterised by the prolonged effects of the Covid-19 pandemic on certain economic sectors, an intensely competitive landscape, volatile capital markets and significant regulatory developments,” the group’s Sens results announcement noted.

“Group performance remained under pressure due to a sluggish economy, global supply chain challenges and chip shortages,” Telkom added.

“The impact of the post-pandemic recovery is still evident in the challenging performance in the small and medium businesses. Competition intensified in the mobile sector. We continue to innovate to protect Telkom’s value proposition in the market,” it said.

Spectrum auction

“The outcome of the recently held spectrum auction resulted in us securing a consolidated 50MHz of 5G spectrum and procuring 20MHz of sub 1GHz spectrum. This spectrum will be consolidated into our existing holdings to improve our competitive advantage,” the group pointed out.

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Telkom said that its Heps performance was boosted by lower finance charges, fair value movements and a resilient Ebitda.

“This was underpinned by our effective sustainable cost management programme which aims to contain opex [operating expense] growth below inflation and [to] optimise cost to serve,” it added.

“The group top-line remains under pressure,” Telkom conceded.

The telecommunications provider said its revenue was supported by growth in the mobile business, however, this was offset by the decline in the fixed and IT (information technology) businesses which remain under pressure.

Read: Telkom burning through cash as warning signs pile up

“Although these businesses’ top-line declined compared to the prior year, the rate of decline improved compared to the first half of the year,” it noted.

Telkom said its operating expenses declined 4% year-on-year despite an average group-wide salary increase of 6% which was effective from April 1, 2021.

The group highlighted that more than half of its Openserve revenue is derived from new business but that “a pricing gap remains between the new business and the legacy business [fixed line]”.

“In the period under review, revenue was relatively flat for the first time after several years of significant decline in the legacy business.”

Telkom said it will use the newly acquired spectrum to support its strategy of building a data-led network.

It revealed that the delay of the separate listing of its masts and tower business, Swiftnet, was intended to protect shareholder value.

Dividends

Meanwhile, the group has reiterated its plan to return to paying dividends.

Considering its three-year dividend suspension period, Telkom said its board is committed to reinstating the dividend policy at the end of FY2023.

“FY2022 was a reset year following changes in the global market, regulatory environment, intense competitive landscape and a weak macro-environment,” it noted.

The group, which has 10.7 million mobile broadband customers, said it is exploring local and international partnerships to strengthen its scale and capability to drive growth.

“We will enhance our financial framework in FY2023 and we expect the group to return to growth… Going forward, we expect Telkom Mobile to grow in line with its industry peers.”

Nondumiso Lehutso is a Moneyweb intern.