Telkom SA Limited (JSE:TKG) News - Trading update for the quarter ended 30 June 2022 (“Q1 FY2023”)

Telkom SA SOC Limited
Registration number 1991/005476/30
JSE share code: TKG
JSE bond code: BITEL
ISIN: ZAE000044897
("Telkom" or “the Group”)

Trading update for the quarter ended 30 June 2022 (“Q1 FY2023”)


Q1 FY2023: Group salient features

    •   Stable growth in active subscriber base in an intensely competitive landscape. Active mobile
        subscribers up 7.8% year on year to 17.3 million with a blended ARPU of R88.53
            o Post-paid subscribers grew 8.0% year on year to 2.8 million at an ARPU of R208.50
            o Pre-paid subscribers grew 7.7% year on year to 14.5 million at an ARPU of R64.77
    •   Solid growth in Mobile data traffic, up 12.4% to 263 petabytes supported by a 2.0% growth in
        broadband subscribers to 10.7 million on a year on year basis
    •   Fibre growth trajectory sustained in the period under review on a year-on-year basis
            o Total fixed traffic increased by 18.9% to 452 petabytes
            o Number of homes passed with fibre grew 45.3% to more than 890 000. Number of homes
              connected with fibre grew by 35.2% to 414 847 representing FTTH connectivity rate of
              46.6%
    •   M 2.3 ppts of it can be ascribed to the specific initiative of the recovery
of our post-paid base, evidenced by the growth in this base by 8.0%.

We have now embedded our second roaming partner, albeit in the selected areas and we are now able to
roam at lower costs. In addition, where we are able to deploy sub 1GHz spectrum, with at least 36% of
our sites now radiating in this band, we have seen a reduction in roaming costs together with enhanced
coverage and improved customer experience with average throughput speeds increasing by 50%.


BCX IT business recorded growth after a challenging period

BCX IT business delivered a good performance for the second quarter in succession, after a challenging
period that was negatively impacted by subdued expenditure by corporates and constraints in the global
supply chain of ICT products. The investments in core capabilities and new operating model implemented
two years ago are starting to yield results.

The IT business benefitted from the easing of global supply chain constraints together with an increase in
deal pipeline and win ratio resulting in revenue growth of 2.6% to R1 760 million. IT Hardware and Software
business, which has used relationships with global OEMs to assist in material planning and pre-build of
orders to improve fulfilment, grew revenue by 11.7%, as orders carried over from the previous quarter
were fulfilled, in line with the improvement of global supply chain constraints. Information Technology
Services revenue grew by 2.7%. Significant growth came from the cybersecurity business and the cloud
business. The growth in the cybersecurity business follows investments made during the previous year in

Security Operations Centre, Incident and offensive security response capabilities. Although the cloud
business experienced good growth, management will put specific focus on this business as South Africa
is experiencing accelerated move to the cloud by corporates. The SAP business returned to growth on the
back of new deals finalised, and significant pipeline being created as organisations move to newer SAP
technologies. The business also experienced a significant uptake in demand for Cloud advisory/consulting
services, from across the customer base.

Converged Communication has seen a decline of 9.6%, which resulted in a top-line performance of R1
641 million. The business unit is in the fourth year of a five-year migration plan from legacy solutions to
next generation solutions. Part of the revenue decline is in line with this migration plan. Traditional Fixed
Voice revenues are showing a predicted year on year decline, however during the first quarter the portfolio
tracked marginally above plan due to higher than predicted usage and adoption of subscription-based
VoIP services.

Data revenues declined due to a drive by the business to accelerate migration away from copper-based
services. With the increase in adoption of Hybrid Cloud services, traditional data customers are shifting
away more rapidly from premium MPLS services and adopting new SD-WAN technologies that are driving
a shift to lower ARPU broadband services. With the accelerated migration, the business may exit copper
services sooner than originally planned.

Overall BCX revenue declined 3.7% to R3 401 million in the first quarter. The easing of global supply chain
constraints and deal pipeline improvement signals a positive outlook for the year ahead.

The continuous drive for efficiencies along with the turnaround in IT has produced an EBITDA
improvement of 15.6% to R445 million. Margin expansion of 2.2% delivered in the quarter resulted in an
EBITDA margin of 13.1%. BCX has been set up to deliver on expectations for the year with a strong end
to the first quarter of the year. We aim to continue driving improvements and performance for the remainder
of the financial year.


Unlock value for shareholders

The value unlock strategy, which was adopted following the realisation that Telkom’s market capitalisation
is not representative of its intrinsic value and remains on course. The Board approved the legal separation
of Openserve, following the completion of a balance sheet and asset allocation exercise. Effective 1
September 2022, Openserve will become a 100% subsidiary of Telkom SA SOC Ltd.

The Capital Markets remain volatile and unattractive for a new listing, and we have therefore made
substantial progress in considering other strategic options relating to Swiftnet. Shareholders will be
advised at the appropriate time of the Board’s final decision relating to the Swiftnet value unlock.


Discussions between Telkom SA SOC Limited (“Telkom”) and MTN Group Limited (“MTN”)

On 15 July 2022, Telkom and MTN announced that they have entered into discussions in relation to MTN
acquiring the entire issued share capital of Telkom in return for shares or a combination of cash and shares
in MTN. Discussions are at an early stage and still in progress.

Given the price sensitive nature of this matter, Telkom is trading under a cautionary announcement and
shareholders will be updated on the developments at the appropriate time through the JSE’s Stock
Exchange News Service (SENS) platform.


SIU investigation

Telkom has approached the High court to declare the proclamation on the Special Investigative Unit
(SIU) invalid. Telkom contends that the SIU has no jurisdiction over it.

The Board considered the likely precedent this proclamation would set and has opted to protect the
organisation. Telkom consistently upholds the principles of good corporate governance.


Restatement of segmental information

The Q1 FY2022 segments were restated following an adoption of the enhanced information technology
model. The adoption of the enhanced information technology model resulted in some of the Telkom Group
Information Technology (TGIT) outsourced services provided by BCX being transferred to different
segments in the Group. This restructuring has resulted in a change in the composition of the BCX segment.
The restatement is in line with the requirements of IFRS8 Operating Segments.


The information contained in this trading update has not been reviewed or reported on by Telkom’s joint
independent external auditors.

All numbers, percentages and year on year comparison in this update reflect Q1 FY2023 compared to Q1
FY2022 unless otherwise stated.


Centurion
2 August 2022

Sponsor: Nedbank Corporate and Investment Banking, a division of Nedbank Limited



Quarterly financial information

The financial information in the table below has not been reviewed or reported on by Telkom’s joint
independent external auditors.

(R’m)                                  Q1 FY2023      Q4 FY2022      Q3 FY2022      Q2 FY2022      Q1 FY2022
                                            June          March       December      September           June
                                            2022           2022           2021           2021           2021
Group revenue                             10 281         10 678         10 786         10 674         10 618
Group EBITDA (statutory)                   2 334          3 049          2 881          3 227          2 751
Group EBITDA margin (%)                     22.7           28.6           26.7           30.2           25.9
Group capex                                1 005          2 329          1 545          2 107          1 503

Revenue breakdown
Fixed                                      3 494          3 891          3 743          3 861          3 843
Voice and subscription                     1 092          1 168          1 193          1 331          1 363
Usage                                        453            493            469            543            536
Subscriptions                                639            675            724            788            827
Interconnection                               72             72             81            104             62
Fixed-line domestic                           46             45             45             53             38
Fixed-line international                      26             27             36             51             24
Data                                       1 994          2 135          2 034          2 068          2 038
Data connectivity                          1 489          1 612          1 503          1 520          1 476
Internet access and related services         357            369            367            384            370
Managed data network services                146            152            166            161            199
Multimedia services                            2              2             -2              3             -7
Customer premises equipment                  269            423            356            314            314
sales and rentals
Sales                                        100            196            186            114             96
Rentals                                      169            227            170            200            218
Other revenue                                 67             93             79             44             66
Mobile                                     5 180          5 111          5 314          5 158          5 208
Mobile voice and subscriptions             1 079          1 074          1 150          1 123          1 113
Mobile interconnection                       118            123            122            119            118
Mobile data                                3 084          3 062          3 127          3 163          3 211
Mobile handset and equipment                 827            773            861            693            703
Significant financing component               72             79             54             60             63
Information technology                     1 376          1 466          1 458          1 367          1 313
Information technology service solutions     728            759            730            752            684
Application solutions                        231            232            231            233            252
IT hardware and software                     373            453            457            363            334
Industrial technologies                       39             15             33             14             36
Significant financing component                5              7              7              5              7
Other                                        231            207            271            291            254
Yep                                           53             60            106             94             77
Gyro                                         178            147            165            197            177
Total                                     10 281         10 678         10 786         10 674         10 618


Quarterly information (Business unit stand-alone view)
  
(R’m)                                  Q1 FY2023      Q4 FY2022      Q3 FY2022      Q2 FY2022      Q1 FY2022
                                                       Restated       Restated       Restated       Restated
                                            June          March       December      September           June
Revenue                                     2022           2022           2021           2021           2021
Telkom Consumer                            6 248          6 249          6 544          6 441          6 519
BCX                                        3 401          3 836          3 506          3 409          3 530
Openserve                                  3 217          3 361          3 347          3 373          3 347
Swiftnet                                     322            301            317            349            325

EBITDA margin (%)
Consumer                                    13.4           16.0           17.9           20.3           17.9
BCX                                         13.1           12.2           15.6           13.3           10.9
Openserve                                   29.9           31.0           32.7           36.3           30.6
Swiftnet *                                  71.4           42.3           78.5           81.9           75.7

Mobile service revenue (external)          4 281          4 259          4 399          4 404          4 443
Mobile EBITDA margin                        23.0           24.9           26.5           29.2           28.4

* The full impact of the new methodology was included in Q4 FY2022. On a normalised basis, including
the impact of the new methodology in Q1 – Q4 of FY2022, the EBITDA margins are Q1 FY2022 –
67.2%; Q2 FY2022 – 73.8%; Q3 FY2022 – 69.9%; Q4 – 70.3%


Quarterly operational information
   
                                       Q1 FY2023      Q4 FY2022      Q3 FY2022      Q2 FY2022      Q1 FY2022
                                            June          March       December      September           June
                                            2022           2022           2021           2021           2021
Broadband subscribers                 11 359 289     11 234 715     11 021 999     11 204 557     11 105 198
Fixed broadband subscribers              612 871        584 189        567 853        562 552        571 023
Mobile broadband subscribers          10 746 418     10 650 526     10 454 146     10 642 005     10 534 175
Active mobile subscribers             17 317 015     16 936 464     16 430 307     16 258 857     16 068 102
Pre-paid subscribers                  14 534 596     14 269 139     13 839 870     13 696 236     13 490 473
Post-paid subscribers                  2 782 419      2 667 325      2 590 437      2 562 621      2 577 129
Mobile blended ARPU (rand)                 88.53          89.94          91.45          92.40          94.31
Pre-paid ARPU                              64.77          65.67          66.68          67.21          67.84
Post-paid ARPU                            208.50         212.47         215.49         216.84         221.11
Traffic
Fixed broadband (petabytes)                  452            428            428            429            380
Mobile broadband (petabytes)                 263            245            246            248            234
Total fixed-line traffic (millions of      1 365          1 508          1 512          1 589          1 569
minutes)
Network
Homes passed with fibre                  890 182        839 691        801 084        707 399        612 451
Homes connected with fibre                14 847        389 109        358 528        331 735        306 837
Fibre connectivity rate (%)                 46.6           46.3           44.8           46.9           50.1
Mobile sites integrated                    7 350          7 313          7 082          6 910          6 646

                
Forward looking statements

Certain financial information presented in this trading update announcement may constitute forward
looking statements.

All statements, other than statements of historical facts, including, among others, statements regarding
our strategy; future financial position and plans; objectives; capital expenditures (capex); projected costs
and anticipated cost savings and financing plans; as well as projected levels of growth in the
communications market, are forward-looking statements. Forward-looking statements can generally be
identified by terminology such as “may”, “will”, “should”, “expect”, “envisage”, “intend”, “plan”, “project”,
“estimate”, “anticipate”, “believe”, “hope”, “can”, “is designed to” or similar phrases. However, the absence
of such words does not necessarily mean a statement is not forward looking.

Forward-looking statements involve several known and unknown risks, uncertainties and other factors that
could cause our actual results and outcomes to be materially different from historical results or from any
future results expressed or implied by such forward-looking statements. Factors that could cause our
actual results or outcomes to differ materially from our expectations include, but are not limited to, those
risks identified in Telkom’s most recent integrated report which is available at www.telkom.co.za/ir.

Telkom cautions readers not to place undue reliance on these forward-looking statements. All written and
verbal forward-looking statements attributable to Telkom, or persons acting on Telkom’s behalf, are
qualified in their entirety by these cautionary statements. Moreover, unless we are required by law to
update these statements, we will not necessarily update any of these statements after the date of this
document, so that they conform either to the actual results or to changes in our expectations.

Date: 02-08-2022 07:05:00
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