More Africa NewsSouth Africa: Telkom moves to stem cash drain

February 14, 2023by myles0

Telkom plans to raise R1-billion by the end of its financial year — 31 March 2023 — through the sale to external financial institutions of “qualifying receivables” related to upfront handset and device sales.

This comes as the telecommunications operator’s free cash flow comes under severe pressure due to the impact of “front-loaded investment in working capital”.

The subsidisation of smartphones and other devices, designed to grow Telkom’s contract user base, is putting huge pressure on company margins and cash generation, its latest quarterly results, published on Tuesday, show.

“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.

Despite “good” top-line growth and optimisation of roaming costs with roaming partners MTN and Vodacom, the migration away from legacy products – especially copper-based solutions – coupled with its investment in post-paid to drive higher annuity revenue and the impact of sustained load shedding has put pressure on costs, Ebitda (a measure of operating profitability) and cash flows.

“We are mindful of these impacts on the future of our businesses and we have thus embarked on cost-saving programmes to be implemented with sustainable benefits materialising over the next six to 18 months,” Telkom said. It did not say whether these measure would include retrenchments or other measures to reduce headcount, but the news was enough to send the company’s share price almost 5% higher in early trading on the JSE on Tuesday.

Revenue up

Despite the pressure on margins, group revenue for the quarter ended 31 December 2022 climbed by 2.3% year on year to R11-billion.

“Group 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,” said Telkom CEO Serame Taukobong. “Performance was, however, impacted by legacy and voice revenue declines caused by ongoing migration to lower-margin next-generation network technologies.”

The company said the escalation in the intensity of load shedding in the December quarter hurt profitability as its inflated the cost base and had an impact on service revenue.

“While our mobile sites are partially backed up through battery power, network availability is materially reduced during load shedding stages 4 and beyond. This impacted revenue and increased roaming costs. However, our core and aggregation network had network availability of 99.99% during load shedding as it has resilient backup power, which consequently increased spend on diesel to ensure network availability thereby also increasing our operating costs,” it said.

Load shedding resulted in more than R150-million in additional costs for the quarter. This helped pile the pressure on Ebitda, where the margin fell by 4.1 percentage points to 22.6%, also knocked lower by the decline in legacy revenues and higher direct costs to grow the mobile subscriber base.

Other key quarterly numbers include:

  • Group Ebitda: Down by 13.5% to R2.5-billion;
  • Mobile revenue: Up 7% to R5.7-billion;
  • Mobile service revenue: Up by 4.5%;
  • Handset and equipment revenue: 17% higher;
  • Mobile data traffic and subscribers: Up by 25.6% and 12.9% to 309PB and 18.6 million, respectively;
  • Mobile broadband customers: Up 9.9% to 11.5 million, comprising almost 62% of active mobile customers;
  • Fixed data traffic: Up 15% to 492PB;
  • Fibre-to-the-home connectivity rate (those taking up the service where it’s available): 45.9%, with the number of homes passed up 27.6% and homes connected up by 31%; and
  • IT business revenue at BCX: Up 8.8% to R1.6-billion.

Source: Tech Central

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