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BCX, which accounts for a third of Telkom’s revenue, continues to grow at a steady pace, with the information communication technology business reporting a quarter of mixed fortunes that saw IT and software performance shooting up, only to be pared down by low margins.
After years of being in the red, the Telkom unit appears to be on firmer footing, benefiting from its new ability to fulfil orders that had been held back by supply chain challenges during the Covid-19 pandemic.
Earlier in the week, Telkom reported that BCX revenue rose 2.4% to R3.175bn in the quarter ended June, on the back of strong performance in the IT hardware and software business.
BCX’s IT business grew its revenue by 7.1% to R1.790bn, primarily driven by the software and hardware business. This unit saw revenue growth of 22.5% year on year, driven by an increase in new business and clearing of backlog orders.
While performing well, this business only offers low margins, but BCX is comfortable with this situation as it creates opportunities to sell higher margin products and services to customers.
“While the low-margin hardware and software business supports revenue growth, it is done strategically to allow BCX to gain access to a wider client base to enable the selling of high-margin IT services in order to improve product mix,” the company said.
The growth in the IT hardware and software business is primarily due to the growth in the local business unit with an increase of 29.8%. IT services revenue remained stable at R1.117bn.
Earnings before interest, tax, depreciation and amortisation (ebitda) declined by 8% to R253m year on year, “driven by the impact of revenue growth from low-margin hardware and software business along with converged communications legacy declines”.
However, this was offset by the decline in impairment of receivables as collections improved, the company said.
Like its parent, BCX continues to reduce its business associated with legacy technologies.
BCX’s converged communications business saw revenue decline by 3.2% to R1.385bn driven by the continued migration from legacy services.
The legacy of Telkom had also been characterised by the use of old copper cable technology. Since then, the group has invested in modernising its systems to make use of fibre and other newer methods of transmitting data.
BCX said legacy telephone lines “continued to decline and resulted in voice revenue declines” of 14.6% year on year, “in line with our migration strategy”.
It said data connectivity revenue, which contributes 33.9% to the converged communications business, had reached an inflection point with 78.2% of revenue comprising next-generation revenue. This comes as BCX’s holding company reported that its revenue grew within guidance and advanced by 3.9% to R10.91bn year on year driven by growth in demand for its next-generation offerings.
Group ebitda for the quarter ended June was up 24.1% to R2.778bn, with next-generation revenue up 7%, the company said in a statement on Monday.
Key contributors to strong next-generation growth include mobile service revenue growth of 9.5%, fixed data next-generation revenue growth of 7.1% and information technology revenue growth of 10.3%.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Mixed fortunes for BCX in first quarter
BCX, which accounts for a third of Telkom’s revenue, continues to grow at a steady pace, with the information communication technology business reporting a quarter of mixed fortunes that saw IT and software performance shooting up, only to be pared down by low margins.
After years of being in the red, the Telkom unit appears to be on firmer footing, benefiting from its new ability to fulfil orders that had been held back by supply chain challenges during the Covid-19 pandemic.
Earlier in the week, Telkom reported that BCX revenue rose 2.4% to R3.175bn in the quarter ended June, on the back of strong performance in the IT hardware and software business.
BCX’s IT business grew its revenue by 7.1% to R1.790bn, primarily driven by the software and hardware business. This unit saw revenue growth of 22.5% year on year, driven by an increase in new business and clearing of backlog orders.
While performing well, this business only offers low margins, but BCX is comfortable with this situation as it creates opportunities to sell higher margin products and services to customers.
“While the low-margin hardware and software business supports revenue growth, it is done strategically to allow BCX to gain access to a wider client base to enable the selling of high-margin IT services in order to improve product mix,” the company said.
The growth in the IT hardware and software business is primarily due to the growth in the local business unit with an increase of 29.8%. IT services revenue remained stable at R1.117bn.
Earnings before interest, tax, depreciation and amortisation (ebitda) declined by 8% to R253m year on year, “driven by the impact of revenue growth from low-margin hardware and software business along with converged communications legacy declines”.
However, this was offset by the decline in impairment of receivables as collections improved, the company said.
Like its parent, BCX continues to reduce its business associated with legacy technologies.
BCX’s converged communications business saw revenue decline by 3.2% to R1.385bn driven by the continued migration from legacy services.
The legacy of Telkom had also been characterised by the use of old copper cable technology. Since then, the group has invested in modernising its systems to make use of fibre and other newer methods of transmitting data.
BCX said legacy telephone lines “continued to decline and resulted in voice revenue declines” of 14.6% year on year, “in line with our migration strategy”.
It said data connectivity revenue, which contributes 33.9% to the converged communications business, had reached an inflection point with 78.2% of revenue comprising next-generation revenue. This comes as BCX’s holding company reported that its revenue grew within guidance and advanced by 3.9% to R10.91bn year on year driven by growth in demand for its next-generation offerings.
Group ebitda for the quarter ended June was up 24.1% to R2.778bn, with next-generation revenue up 7%, the company said in a statement on Monday.
Key contributors to strong next-generation growth include mobile service revenue growth of 9.5%, fixed data next-generation revenue growth of 7.1% and information technology revenue growth of 10.3%.
gavazam@businesslive.co.za
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.