Telkom swings to R1.9bn profit from R10bn loss

Telkom chief financial officer Nonkululeko Dlamini said more disposals were in the offing and the group would release details of these when appropriate. Picture: Lalinka Mahote Independent Newspapers

Telkom chief financial officer Nonkululeko Dlamini said more disposals were in the offing and the group would release details of these when appropriate. Picture: Lalinka Mahote Independent Newspapers

Published Jun 19, 2024

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Nicola Mawson

Telkom, the third-largest telecoms company in South Africa, has reported a profit of R1.9 billion in the year ended March 31, 2024, up from a loss of nearly R10bn the previous year, partially because it had booked a R13bn impairment in 2023 because of its legacy copper business – and these headwinds were now behind it.

Although headline earnings per share (HEPS), a key measure of profitability, gained 201.3% to 376 cents a share, Telkom did not declare a dividend for the fifth year in a row.

Instead, Telkom yesterday said it will be able to share cash with shareholders in “the near term” with the next 12-month period targeted as the first year-end to consider paying a dividend.

Telkom’s new dividend policy is to pay out a range of 30% to 40% of free cash flow after considering capex investments.

During the year, better-than-expected positive free cash flow of R424 million was driven by improved operational performance and a measured approach to capital expenditure.

The telecoms company spent R6.1bn towards network resilience, expanding its mobile network including spending on spectrum, modernising its fixed network and improving skills and capabilities for ICT aspects.

Cash from operations increased by more than R4bn, which excludes restructuring costs of R1bn as it trimmed 15% of its headcount.

Speaking during the investor presentation yesterday, Telkom Group CEO Serame Taukobong said data consumption delivered growth as promised to data-hungry end users, with mobile revenue up 6.8% to R12bn – ahead of the industry.

Fibre was also a key focus area, with 1.2 million homes passed.

“Our approach is not to look at homes passed but homes connected,” Taukobong told Business Report.

Telkom currently has 49% connectivity and is aiming for 55% to ensure return on investment.

The majority state-owned telecoms group is also moving off the grid, with fibre company Openserve implementing green energy solutions in the form of solar and lithium-ion batteries to support an always-on network.

This will reduce Telkom’s dependency on high-cost energy solutions as well as improve its environmental, governance, and social standing.

Operating in a difficult operating environment, Taukobong explained that Telkom was seeking to trim its interest payments by moving to longer-term debt and will also use proceeds from the sale of Swiftnet to pay down debt.

Selling Swiftnet for R6.75bn has been approved by shareholders and is just awaiting regulatory approval.

In the meantime, Telkom continued to commercialise its masts and towers portfolio as customers continued to invest in improving their network performance and capacity.

Telkom chief financial officer Nonkululeko Dlamini said more disposals were in the offing and the group would release details of these when appropriate.

Mergence Investment Managers head of equities, Peter Takaendesa, said Telkom had taken the correct route in terms on basing its dividend policy on free cash flow, as HEPS could be problematic if it had earned but did not get cash in.

“The way they are communicating their dividend policy is the right way to look at it,” he said.

Takaendesa also said both fibre and mobile businesses were capital hungry, which would place pressure on Telkom’s ability to pay dividends.

For instance, Telkom’s competitor, Vodacom, spent R11bn on mobile alone in the last financial year.

Takaendesa said if Telkom was really being aggressive it would invest far more.

“The question is to what extent they will be able to improve cash flow, which has been a key issue, without materially constraining their capital investments,” said Takaendesa.

He also noted that it would be hard for Telkom to push harder on capital without harming its balance sheet, with it carrying a large amount of debt, or selling an asset that was not core.

BUSINESS REPORT