Wrap Text
Interim results for the six months ended 30 September 2019
Telkom SA SOC Limited
(Registration Number 1991/005476/30)
JSE share code: TKG
JSE bond code: BITEL
ISIN: ZAE000044897 (‘Telkom’ or the ‘company’)
TELKOM SA SOC LIMITED
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019
Salient features
Telkom’s performance was driven by strong growth in the mobile business.
(Reported numbers)
Group operating revenue EBITDA BEPS HEPS Capex
Up 4.7% Up 12.4% Down 34.5% Down 36.1% Up 29.4%
R21.5bn R5.6bn 176.8c 183.4c R4.2bn
capex to
revenue ratio
19.7%
(IAS 17 basis)*
EBITDA BEPS HEPS
Down 4.3% Down 39.7% Down 40.7%
R5.0bn 187.7c 194.3c
Telkom delivered a solid revenue performance, increasing by 4.7 percent to R21.5 billion, despite the
weak economic environment where South Africa escaped a technical recession in the first half of the
year. Performance was driven by strong growth in the mobile business and masts and towers in Gyro.
Mobile service revenue continues to be the main driver of revenue growth increasing by 56.6 percent to
R5 602 million. This was supported by a significant increase in customer base. Our mobile business
remains the fastest growing business in the market with market share gains underpinned by our affordable
broadband-led propositions, which resonate with our customers.
Our strategy to separate the real estate property portfolio to increase management focus yielded good
results. Gyro contributed positively to the group through a 11.7 percent growth in masts and towers
revenue.
Despite the pressure from Enterprise customers deferring spend, IT revenue from BCX was flat compared to
prior year.
Changing technology remains a key challenge in our business. Our strategy to accelerate the upgrade of
customers to next-generation technologies led to a 19.1 percent decline in fixed voice and
interconnection revenue across the group. Despite this, Openserve’s and BCX’s overall revenue decline
was contained at 8.5 percent and 3.3 percent respectively, due to growth generated by next-generation
revenue.
Our capital investment of R4.2 billion continues to underpin our growth, with a capital expenditure
(capex) to revenue ratio of 19.7 percent invested in our key growth areas - mobile and fibre. More than
50 percent of the capital investment was in the mobile business, increasing by 66.1 percent to
R2.2 billion when compared to the prior period, to support growth in the mobile business and to prepare
for the accelerated upgrade of customers to LTE and fibre. In the period, we increased our coverage by
increasing our mobile base stations integrated by 24.9 percent to 5 476 and implemented our new roaming
agreement to supplement our own network.
Our sustainable cost management programme delivered positive results. Underlying group operating
expenses were flat* compared to the prior period in an increasing inflation environment. This was
pronounced in the BCX environment, where EBITDA grew more than 22.6* percent on a standalone basis
following an organisational restructuring in the prior year. Despite the benefits of the cost management
programme, overall group EBITDA was down 4.3* percent. This was impacted by the costs associated with
the growth in mobile business, including a one-off cost relating to utilising two roaming partners in
the first half of the year. We remain focused on operational efficiencies while our revenues evolve, and
we manage the impact of inflation in our expenses.
Group HEPS mainly impacted by finance charges and fair value movements
Reported HEPS decreased 36.1* percent to 183.4 cents per share, mainly due to lower profit before tax.
On a IAS 17 basis and excluding the VERP and VSP cost in the prior period, HEPS decreased 40.7* percent
to 194.3* cents and BEPS decreased 39.7* percent to 187.7* cents, impacted by lower profit before tax.
The lower profit is mainly attributable to a significant increase in net finance charges and fair value
movements of 87.0* percent relating to the increase in the finance charges, cost of hedging increase as
a result of the increase in the forward exchange contracts (FEC) order book, and foreign exchange and
fair value movements.
Group capital investment for future growth
The accelerated investment was to support growth in the mobile business and to prepare for the
accelerated upgrade of customers to LTE and fibre. The investment in fibre to the home (FTTH) was
rationalised as we focus on areas showing a propensity for higher connectivity rates. Our FTTH
connectivity rate improved to 42.6 percent, the highest connectivity rate in the market**. We increased
our investment in the packet optical transport network, which will future-proof the core network. This
is the foundation for software-defined networks and network function virtualisation capability.
Strong balance sheet to fund future growth
On a IAS 17 basis Telkom’s net debt to EBITDA (annualised) is 1.2* times. Net debt excluding the impact
of IFRS 16 increased to R11 775* million (FY2019: R8 813 million). Group cash balances declined to
R1 002 million (FY2019: R1 428 million), mainly due to higher capex to fund the mobile infrastructure
rollout, which has supported the mobile revenue growth.
The growth in borrowings is in line with our strategy to fund capex through long-term debt as the group
moves to an optimal capital structure.
Reported
IFRS 16 IAS 17*
Sep Sep Mar
2019 2019 2019 Variance
Balance sheet Rm Rm Rm %
Bank and cash balances 1 002 1 002 1 428 (29.8)
Current borrowings (4 979) (3 991) (5 401) (26.1)
Non-current borrowings (11 836) (8 786) (4 840) (81.5)
Net debt (15 813) (11 775) (8 813) 33.6
Net debt to EBITDA (times) 1.4 1.2 0.8 0.4
Free cash flow impacted by capex
Adjusted free cash flow weakened to negative R1 267 million (H1 FY2019: positive R138 million) due to
a R1 billion increase in cash paid for capex, a 30.9 percent growth compared to the prior period.
Outlook
We believe that the economy will remain tough and the consumer will remain under pressure.
Our sustainable cost management has started to deliver positive results to our operating expenses.
We expect savings to come through in the second half of the year, which will improve EBITDA relative to
H1.
We are implementing various initiatives to release cash to improve the working capital cycle. These
initiatives include supply chain financing, handsets receivables financing and a programme for disposal
of non-core assets. We expect to realise tangible benefits from these initiatives before the end of the
guidance period.
Our capital investment strategy has enabled us to compete effectively, deliver current growth levels and
broadband leadership. We intend to continue the strategic rollout of our network. Given our increasing
capital requirements, we will rigorously implement the capital allocation framework which will
prioritise our capital investment program to ensure the long-term sustainability of our business.
Our net debt to EBITDA ratio has increased to 1.4 times which is above our medium-term guidance due to
the adoption of IFRS 16 and the funding of the mobile infrastructure rollout which has supported mobile
revenue growth. We have accordingly updated our net debt to EBITDA ratio guidance to 1.5 times over the
guidance period.
The capital requirement for a sustainable business is likely to impact the current dividend policy. In
considering the dividend policy we will prioritise our capital investment program, maintain an
investment grade credit rating and consider our cash position. Long term shareholder value remains a key
priority in our capital allocation framework and we aim to deliver improved total shareholder return.
The information contained in this outlook statement has not been reviewed or reported on by Telkom’s
auditors.
Declaration of dividend
Our policy is to pay an annual dividend of 60 percent of headline earnings with an interim dividend of
40 percent of interim headline earnings.
In line with our dividend policy, the board declared an interim gross ordinary dividend number 25 of
71.52636 cents per share.
The declared dividend is payable on Monday, 2 December 2019 to shareholders recorded in the register of
the company at close of business on Friday, 29 November 2019. The dividend will be subject to a local
dividend withholding tax rate of 20 percent, which will result in a net final dividend of 57.22109 cents
per ordinary share to those shareholders not exempt from paying dividend withholding tax. The ordinary
dividend will be paid out of available cash balances.
The number of ordinary shares in issue at date of this declaration is 511 140 239. Telkom SA SOC Ltd’s
tax reference number is 9/414/001/710.
Salient dates regarding the ordinary interim dividend
Declaration date Tuesday, 12 November 2019
Last date to trade cum dividend Tuesday, 26 November 2019
Shares trade ex-dividend Wednesday, 27 November 2019
Record date Friday, 29 November 2019
Payment date Monday, 2 December 2019
Share certificates may not be dematerialised or rematerialised between Wednesday, 27 November 2019 and
Friday, 29 November 2019, both days inclusive.
On Monday, 2 December 2019, dividends due to holders of certificated securities on the South African
register will be transferred electronically to shareholders’ bank accounts.
Dividends in respect of dematerialised shareholders will be credited to shareholders’ accounts with
their relevant central securities depository participant or broker.
Sello Moloko
Chairman
Sipho Maseko
Group chief executive officer
Tsholofelo Molefe
Group chief financial officer
Pro forma financial information
The adjustments below reconciles the impact of the adoption of IFRS 16 for the six months ended
30 September 2019. IFRS 16 presents the September 2019 financial information as included in the reviewed
condensed consolidated interim financial statements.
September 2019
Extract of the condensed consolidated interim statement of profit or loss
Reported
IFRS 16 IAS 17* Pro forma
Sep IFRS 16 Sep Sep
2019 impact 2019 2018
Rm Rm Rm Rm
Operating leases 226 564 790 680
EBITDA 5 604 (564) 5 040 5 267
Depreciation, amortisation,
impairments and write-offs 3 412 (456) 2 956 2 791
Operating profit 2 192 (108) 2 084 2 476
Finance charges 1 002 (183) 819 438
Profit before taxation 1 243 75 1 318 2 148
Taxation 358 21 379 561
Profit for the period 885 54 939 1 587
BEPS (cents) 176.8 187.7 311.0
HEPS (cents) 183.4 194.3 327.8
Interim dividend (cents) 71.5 71.5 112.1
Net debt to EBITDA
IFRS 16 IAS 17*
Sep Sep Sep
2019 IFRS 16 2019 2019
Rm Rm Rm Rm
Non-current assets 43 467 (3 944) 39 523 37 961
Non-current liabilities 13 225 (3 050) 10 175 6 740
Current liabilities 16 544 (988) 15 556 16 436
Net debt 15 813 (4 038) 11 775 8 813
Net debt to EBITDA (times) 1.4 1.2 0.8
September 2018
Extract of the condensed consolidated interim statement of profit and loss
Reported Pro forma*
Sep Pro forma* Sep
2018 adjustment 2018
Rm Rm Rm
Employee expenses 5 443 (282) 5 161
EBITDA 4 985 282 5 267
Operating profit 2 194 282 2 476
Taxation 481 80 561
Profit for the period 1 385 202 1 587
BEPS (cents) 270.1 311.0
HEPS (cents) 287.0 327.8
Unless otherwise stated all commentary, messaging and indicators in this announcement for the period
ended 30 September 2019 are presented on a IAS 17 basis for comparable purposes. The comparative period
excludes VERP and VSP costs of R282 million and the related tax impact of R80 million. During the year
we restated the prior period revenue by R336 million to exclude Smart Office Connection (SOX). This
revenue adjustment led to a restatement of the prior period number from R20 847 million to
R20 511 million.
* Information for the current period and restated as well as pro forma information for comparable
purposes as defined on pages 4 and 5 in the long-form interim financial results announcement.
** Source: Africa Analysis - FTTH Market June 2019.
Pro forma financial information:
Certain information presented in this results announcement has been prepared excluding the impact of the
adoption of International Financial Reporting Standard (IFRS) 16 in the current period and voluntary
early retirements package (VERP) and voluntary severance package (VSP) costs (“the pro forma
adjustments”) in the comparative period. This constitutes pro forma financial information to the extent
that it is not extracted from the segment disclosure included in the reviewed condensed consolidated
financial statements for the six months ended 30 September 2019. This pro forma financial information
has been presented to eliminate the impact of the pro forma adjustments from the consolidated financial
results for the six-month period ended 30 September 2019 to achieve a comparable period-on-period
analysis and show the underlying performance of the business. The pro forma adjustments have been
determined in terms of the group accounting policies disclosed in the consolidated financial statements
for the six-month period ended 30 September 2019, except for the changes in accounting policies as a
result of the adoption of the accounting pronouncements effective 1 January 2019 and the JSE Listings
Requirements.
Further information: The short-form interim financial results announcement and pro forma financial
information is the responsibility of the board of directors of Telkom. It is only a summary of the
information contained in the long-form interim financial results announcement and does not contain full
or complete details.
Due to its nature, the pro forma financial information is for illustrative purposes only and may not
fairly present Telkom's financial position, changes in equity, results of operations or cash flows.
Any investment decisions should be based on the long-form interim financial results announcement
published on the JSE's website on Tuesday, 12 November 2019 and also available on Telkom’s website at
www.telkom.co.za/ir.
The long-form interim financial results announcement is available on the company’s website at:
https://www.telkom.co.za/ir/financial/financial-results-2020.shtml and on the JSE’s website at:
https://senspdf.jse.co.za/documents/2019/jse/isse/tkg/tkgir2019.pdf
The long-form interim financial results announcement is furthermore available for inspection at the
company’s registered address and the offices of the JSE sponsor (Nedbank CIB) during office hours at no
charge to shareholders.
Transfer secretaries are Computershare and they are contactable on +27 (11) 370 5000.
www.telkom.co.za
12 November 2019
Date: 12/11/2019 07:05:00
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