Telkom’s strategy starts to ring true

Telkom is growing its top line and operating profit as mobile finally starts making money, and it integrates Business Connexion.

Johannesburg - Telkom’s turnaround strategy is paying off as the fixed-line and mobile operator shows growth on all its important measures.

This company on Tuesday issued its results for the first 6 months to September and showed improvements on the revenue and operating profit lines.

Its operating revenue gained 21 percent to R20 billion, while net operating revenue was up 3 percent to R14 billion.

Earnings before interest, tax, depreciation and amortisation - a measure of operating performance - gained 5 percent to R5 billion with a margin of 26 percent

Headline earnings per share, a key measure of profitability, increased 20 percent to 336 cents.

Read also: Telkom gains on earnings update

During the first half, the company also spent R3.6 billion on its network, an increase of 56 percent.

In a statement, Telkom explains its consolidation of ICT services provider Business Connexion, as well as a satisfactory performance from its mobile business drove revenue performance during the period.

Telkom bought Business Connexion in 2014 for R2.67 billion. This was the second time it tried to buy the previously listed company, as its first bid was quashed by competition authorities.

The telecoms giant says mobile voice and subscriber revenue increased 30 percent to R520 million thanks to a 42 percent increase in the number of active mobile subscribers and resulted in the mobile business contributing positively to group operating profit for the first time since its launch.

Telkom’s mobile arm, initially known as 8ta, launched in 2010, but battled to turn operating profit and initially bled money as Telkom invested in its network. Telkom had tried to enter a network sharing deal with MTN to staunch the bleeding, but this was unsuccessful last year when the competition authorities said they would block that deal.

Telkom CEO Sipho Maseko, says, “the splendid performance in our mobile division was assisted by the complete overhaul of our mobile product offering in the form of FreeMe, the launch of new stores and sales channels as well as competitive products and pricing such as Deal of the Month campaigns”.

FreeMe product offers customers a data bundle with voice, WhatsApp calls, text for free and free Wi-Fi. According to an analysis by Tariffic, the FreeMe packages are the top choice for high data and voice users in South Africa.

In the six-month period Telkom sold approximately 170 000 prepaid FreeMe bundles, with over 70 percent of sales coming through our channels.

“Our mobile business has been able to establish itself as a meaningful player in the market. We intend growing our scale in the mobile market through focusing in the post-paid and data market in which we are already making inroads,” says Maseko.

As from November, the enterprise business has been fully integrated with Business Connexion under the leadership of Isaac Mophatlane as CEO of the merged entity.

“I’m delighted to announce that synergies were already realised through cross selling to each other’s customer base, thanks to a go-to-market strategy which was well received by customers. In addition, the teams won business together as they leveraged on their ability to offer end-to-end solutions to Enterprise customers,” says Maseko.

Fixed-line

However, revenue from fixed lines continues to decline, and partially offset gains from the mobile and BCX units.

Fixed-line voice usage and subscription revenue decreased by 4 percent to R7 billion, driven by competition, mobile substitution, a 7 percent decline in the number of lines and customers migrating to lower value bundled offerings.

“Despite the increased competition in the market, we are in a good position to execute on our strategy. However, the tough economic environment presents a challenge, as Business Connexion including the enterprise business is particularly impacted by these adverse conditions.

“We will continue to deploy capital to the growth areas of the business, which will ultimately grow our revenue. Our capital investment has given priority to fibre to the premises and the mobile business as we see these areas as growth platforms for our businesses,” says Maseko.

Telkom will continue to modernise its network with the intention to migrate customers from legacy systems to fibre. This programme is expected to increase network use and, over time, improve returns.

The board has decided to amend the current dividend policy to a total dividend distribution of 60 percent of headline earnings for the year with an interim dividend of 40 percent of interim headline earnings. As a result, an ordinary interim dividend of 131 cents per share for the period to end September has been declared. Its full-year dividend was 270 at March 2016.

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