JSE-listed Telkom has reported a 13.5% decline in earnings before interest, taxes, depreciation and amortisation (Ebitda) to R2.49-billion during the three months ended December 31, 2022.

Telkom’s Ebitda margin contracted 4.1 percentage points to 22.6%.

This emerged amid sustained pressure from the migration of legacy products to new generation network (NGN) offerings, investment in post-paid to drive higher annuity revenue from this base and the impact of sustained nationwide loadshedding on the company’s costs, Ebitda and cash flows.

Loadshedding resulted in a year-on-year increase of more than R150-million additional costs for the quarter, the company said in a trading update on Tuesday.

During the third quarter of the 2023 financial year, Telkom’s group revenue increased 2.3% to R11-billion, driven by growth in active subscribers, mobile and fibre, increased data traffic, and higher handset and equipment sales to retail, as well as increased information technology (IT) solutions/equipment sales to enterprise customers.

“Our mobile and broadband strategies continued bearing fruit. We saw good growth in broadband as our data-led and connect-led strategies continued to drive growth in mobile and fibre subscribers along with data use,” said Telkom Group CEO Serame Taukobong.

“Mobile broadband customers now comprise almost 62% of total active mobile subscribers, while Openserve's open-access network gained traction as external channels advanced to contribute more than 30% of its total revenue.”

Mobile revenue increased 7% to R5.68-billion during the quarter under review, with mobile service revenue increasing 4.5% and handset and equipment revenue increasing 17%.

Mobile data traffic and subscribers were 25.6% and 12.9% year-on-year to 309 petabytes and 18.6-million subscribers respectively during the quarter under review

Mobile broadband customers increased 9.9% to 11.5 million.

Telkom Consumer revenue increased by 1.7% in the quarter to R6.65-billion despite trading in an adverse economic climate and the accelerated migration of legacy to next generation technologies.

“Our traditional copper-based voice revenues continue their downward trajectory and declined by 27.5% as we derisk ourselves from these legacy services and now only account for 5.3% of total operating revenue for the business unit. We saw growth in fibre, which improved subscribers by 22.1% and revenue by 34.3%,” he said.

During the quarter to December, Openserve grew its homes passed base by 27.6% to more than one-million.

“This focus on execution coupled with a connect-led strategy, enabled Openserve to increase the number of homes connected with fibre by 31% to 469 556, maintaining its leading connectivity rate of 45.9%,” Taukobong noted.

Openserve continued its growth trajectory across NGN products and services, with fixed data NGN revenue growing by 12.5% driven by broadband, which is up 23.9%, carrier services up 9.4% and enterprise services, up 1.4%.

As demand for connectivity and consumption increased, Openserve saw fixed data traffic increase by 15% to 492 petabytes.

“As Openserve transforms its technology, revenue and channel mix, it continued to experience pressure across its legacy-based products resulting in a 27.9% decline in fixed voice revenue,” he said.

“While Openserve lays the foundation for future growth, the ongoing economic pressures and loadshedding, negatively impacted costs with a significant increase of R108-million in diesel spend, resulting in a lower Ebidta margin of 29.4% for the quarter and Ebitda of R948-million.”

“Considering these challenges, Openserve has actioned its energy plan by rolling out alternative energy options to over 200 key sites across the country and will continue to derisk itself by implementing multiple cost-effective energy solutions as part of its overall Sustainable Energy Strategy,” he outlines.

Meanwhile, IT business growth at BCX supported revenue during the quarter to December.

Third-quarter revenue remained flat at R3.5-billion mainly owing to an increase in hardware and software sales, that was, however, slightly offset by a decline in the converged communication business.

IT business revenue increased 8.8% to R1.58-billion, while the converged communications business revenue declined by 7.4% to R1.63-billion.

Swiftnet continued commercialising at healthy margins, with revenue increasing marginally to R318-million.

“The impact of ongoing loadshedding for the quarter and the increased mobile network footprint resulted in a higher cost base for the group. This coupled with the required investment in working capital to optimise the mobile subscriber base mix negatively impacted Telkom's profitability for the current financial year to date,” Taukobong pointed out.

“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 to mitigate cost pressures and improve the group's medium-term profitability.”

A number of initiatives are already in progress to address the group cost base and are expected to be visible in the medium term from the 2024 financial year onwards.

Telkom will be required to invest in exiting and reducing certain direct and operating costs, with a significant portion of these costs accrued in 2023.

“In addition, in order to mitigate the impact of frontloaded investment in working capital as well as ongoing pressure on free cash flow, the group plans to raise a further R1-billion by the end of the 2023 financial year through the sale of qualifying device receivables to external financial institutions to mitigate the impact on free cash flow.”