Telkom in deep financial trouble

Telkom is in deep financial trouble. Its net debt increased by 19.3%, free cash flow declined by 30.9%, and net debt to EBITDA increased from 1.2 to 1.8.

Telkom released its financial results for the year ended 31 March 2023, which revealed a company struggling to make ends meet.

Telkom tried to put on a brave face, saying it “showed resilience amid tough trading conditions” in a press statement.

It highlighted that revenue was up 0.9% to R43.138 billion, mobile customers increased 7.8% to 18.3 million subscribers, and mobile service revenue grew by 1.8%.

However, delving deeper into the results document revealed that the company has numerous challenges, including rising debt and plummeting cash flow.

Apart from Telkom’s mobile and fibre divisions, there was a sea of red in the operators’ latest financial results.

Its Internet subscribers declined by 20%, fixed access lines declined by 21%, and fixed-line voice traffic is down 18%.

Telkom’s legacy copper business is essentially dead, which prompted an impairment of R13.017 billion on Openserve and Telkom Consumer.

Even ignoring the tremendous impairment, Telkom struggles financially with flat revenue and rapidly increasing costs. This is clearly illustrated in its free cash flow and net debt.

Telkom’s free cash flow weakened to negative R2.722 billion from negative R2.080 billion the year before.

It was mainly a result of a 45.0% decrease in cash generated from operations, impacted by the R3.218 billion decline in profit before tax compared to the prior year.

Telkom’s poor operational performance also impacted its borrowings. Net debt increased by 19.3% from R14.067 billion to R16.777 billion.

The increased debt resulted in Telkom’s net debt to earnings before interest, taxes, depreciation, and amortisation (EBITDA) ratio increasing from 1.2 to 1.8 times.

To put this in perspective, in 2015, Telkom’s net debt was only R123 million, with a net debt to EBITDA ratio of 0.02. It rapidly increased over the next eight years to where it is today.

The charts below show how Telkom’s net debt and net debt to EBITDA ratio increased over the last eight years.