Load shedding piles on the pressure at Telkom

Telecoms group Telkom says that the cost benefits of retrenchments at the company have been partly negated by increased diesel spend to counter load shedding – and legacy issues and service declines are still weighing on profits.

The group posted a trading statement for the first quarter of 2024, ending 30 June 2023, where it said it had demonstrated an “encouraging performance” over the quarter, but load shedding, legacy revenue declines, and higher ECL provisions weighed down on overall Group profitability.

Telkom CEO Serame Taukobong said group performance was “pleasing” in the face of rolling power outages (load shedding), muted economic growth, continuing inflationary pressures on consumers and an intensely competitive landscape – starting the 2024 financial year with good momentum.

“Our data-led strategy paid off as new generation network (NGN) revenues grew. Our subscriber base continued to grow, and with increased demand for connectivity, we saw strong double-digit growth in data consumption – a testament to both our Mobile and Fibre businesses,” he said.

Mobile data revenue grew 9.9%, driving exciting mobile service revenue growth, while fixed
data NGN revenue growth in Telkom’s fibre business advanced 10.6%, contributing to Openserve’s leadership in providing open access connectivity across South Africa, noted the trading statement.

Demand for IT hardware and software at BCX was also healthy as the fulfilment of orders improved along with new orders.

“Performance was, however, impacted by legacy and fixed voice revenue declines caused by ongoing migration to NGN technologies across our businesses, as anticipated,” added Taukobong.

Group revenue increased by 3.8% to R10 668 million, largely driven by pleasing growth in new-generation technologies. “NGN growth was driven by increased data traffic along with good ongoing growth of active subscribers in both our mobile and fibre businesses, with Mobile service revenue advancing 6.5%,” it said.

However, Group EBITDA declined by 4.2% contracting the EBITDA margin by 1.7 percentage points (ppt) to 21.0%, largely affected by the decline of legacy revenues as well as higher direct and operating costs.

“The benefit of reduced employee costs following the restructuring exercise has been partly negated by the additional spend on diesel to mitigate the impact of load shedding, as well as a slight increase in direct costs, which were negatively impacted by the product mix for the quarter,” said Taukobong.

Other notable results include:

• Telkom Mobile – Mobile revenue is up 5.2% to R5 448 million;
  o Mobile service revenue is up 6.5%;
  o Mobile data revenue is up 9.9%;
  o Mobile data traffic and subscribers are up 25.1% and 6.9% year-on-year (“y-o-y”) to
  329 petabytes and 18.5 million subscribers, respectively; and
  o Mobile broadband customers up 8.9% to 11.7 million, comprising an increased
  63.2% of active mobile customers.

• Openserve – fixed data new generation revenue growth sustained at 10.6%
  o Fixed data traffic up 13.3% to 512 petabytes
  o Sustained, leading FTTH connectivity rate of 46.5%, with the number of homes
  connected up 24.2%

• BCX revenue is up 2.9%, driven by IT business growth.
  o IT business revenue is up 17.5% to R2 068 million.

• Swiftnet commercialised at healthy margins.
  o Revenue up 1.2%; and
  o Healthy EBITDA margin of 71.8%.

Taukobong added that the cost of load shedding has now largely been incorporated into Telkom’s operating cost base but will continue to impact group profitability.

“To this end, Telkom is investing in capital expenditure to improve our mobile and fibre networks’ resilience, as well as reduce diesel consumption by installing and upgrading to lithium batteries along with reconfiguring our sites for batteries to become the primary backup system.

“We are also increasing our solar power footprint at key properties/sites to reduce the impact of power outages caused by load shedding,” he said.

“We are pleased that cost savings from our recent labour restructuring process offset the impact of load shedding as planned, but the legacy revenue declines along with higher ECL provisions weighed down on overall Group profitability. The Group will continue improving its cost base to improve profitability in the medium term,” said Taukobong.

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