Telkom’s R2.3 billion headache

Telkom spent R2.3 billion in its past financial year to service its debt, which continued to grow over the past 12 months despite reducing capital expenditure (capex) and selling parts of its business. 

This was revealed in the company’s results for its 2024 financial year, with the company bouncing back to profitability. 

Telkom posted a profit of R1.88 billion from an almost R10 billion loss in the previous year. Its basic earnings per share from continuing operations also skyrocketed, going from a loss per share of 2,120 cents to earnings of 297.8 cents – a 114% increase.

Telkom CFO Nonkululeko Dlamini was at pains to explain why, despite this performance, the company’s debt pile continued to grow, and its cost to service this debt surged. 

During the company’s investor presentation, Dlamini revealed that Telkom’s finance charges grew 58.2% in the past financial year to R2.3 billion. 

This is largely due to the higher cost of debt due to elevated interest rates, but the company also said its net debt increased marginally. 

Telkom’s net debt stood at R16.92 billion at the end of March 2024, a slight increase from R16.78 billion in the previous financial year. 

Despite this increase, the company remains far from breaking its loan covenants with its funders as its net debt to EBITDA improved to 1.7 times. Dlamini said most of the company’s covenants sit at around three times. 

Telkom also increased its use of loans during the 2024 financial year, amounting to R9.4 billion. 

Dlamini said the company increased the use of these facilities during the current reporting period to repay maturing bonds, loans and funding needs while negotiating and securing long-term debt. 

The utilisation of committed facilities resulted in a higher amount of loans raised and corresponding loans repaid, with net funding paid of R150 million. 

Telkom’s rising debt and surging debt costs are at odds with the company’s stated strategy, which is to limit capex and pay down its debt. 

“Our short- to medium-term priorities are to strengthen our balance sheet by paying down debt in the prevailing “higher-for-longer” interest rate environment and investing in capex to drive future growth,” the company said in its results. 

A vital part of this strategy is the sale of some of Telkom’s subsidiaries, such as its masts and towers business, Swiftnet. 

The proceeds from the disposal of the masts and towers business will boost Telkom’s cash position and reduce debt to within the targeted 1.0x to 1.5x net debt to EBITDA range in the short term.  

However, the company said it would still have to repay a large part of its debt from cash generated from operations. 

These target debt levels will further free up cash flow by reducing finance costs and will give it the flexibility to gear up at more favourable rates when the interest rate cycle turns.

The sale of Swiftnet has not yet been concluded as regulatory hurdles remain, delaying the planned paying of debt. 

Telkom said it would continue to operate Swiftnet as part of its operations while regulatory approvals for its sale are pending. 

However, the company has managed to greatly improve its debt profile by extending the payback period for some of its loans. 

This is shown in the graph below.