Productive capital
Performance snapshot
Achievements
Masts and towers revenue up 6.6% to R1 237 million
Masts and towers EBITDA up 23.2% to R994 million
Tower Build programme gained momentum with 368 permits acquired
Small cells and in-building solutions in process of deployment
Concluded new leases to grow the masts and towers portfolio
Property development projects advanced further in the development planning phase
Savings of R110 million achieved against planned property operating cost spend
Challenges
Poor economic conditions worsened by COVID-19 and the resultant impact on business operations
Key strategic
focus areas
focus areas
Optimise and grow the masts and towers portfolio
Commercialise the property portfolio
Enhance building costs and operational efficiencies
COVID-19 impact
Gyro operations adapted to and navigated the uncertainties and new realities of operating in the COVID-19 environment.
Working remotely for the entire year contributed to the reduction in property operating costs.
The Tower Build programme was affected negatively, as building permits and availability of power for the new sites were delayed as municipalities operated at lower capacity during the year.
Town planning approval processes for property development projects were prolonged due to operating under the lockdown regulations.
Our disposal efforts experienced challenges due to prolonged transaction and property transfer processes as a result of the lockdown regulations.
Gyro delivered satisfactory operational and financial performances during the year. We continued to operate remotely during the second half of the year. Our operations adapted to and navigated the uncertainties and new realities of operating in the COVID-19 environment in pursuit of the business objectives.
The masts and towers portfolio continued to grow by commercialising existing towers and executing the new tower build pipeline.
We continued with the property development planning activities, taking cognisance of the reduced development activity and lower real estate absorption in the market due to subdued demand as a result of the worsened economic conditions and the COVID-19-related impact.
The COVID-19 operating environment presented the opportunity to further optimise on property operating costs across the Telkom businesses, mainly as we operated remotely except for services that required physical presence at the work premises.
Performance overview
Masts and towers revenue increased by 6.6% to R1 237 million, supported by the number of new leases increasing by 8%. The growth in the masts and towers portfolio was offset by the decline in rental revenue for the property portfolio as internal tenants vacated properties due to space consolidation. We continue to prepare suitable properties for development opportunities. EBITDA for the masts and towers business increased by 23.2% to R994 million and the EBITDA margin increased to 80.4% (FY2020: 69.6%).
Lower property rental revenue, management fees and a once-off cost of R23 million to support government efforts to combat COVID-19 resulted in Gyro EBITDA decreasing by 4.4% to R1 135 million.
Masts and towers
Revenue
R'million
EBITDA
R'million
Optimise and grow masts and towers portfolio
The masts and towers portfolio is a critical element in delivering mobile network connectivity and related services to commercial, residential and individual customers.
Gyro has an active Tower Expansion programme that is supported by build-to-suit agreements from anchor tenants. We also proactively identify and secure strategic sites that we deem suitable for all mobile operators in order to support their requirement for market expansion. The portfolio remains categorised into the mature and growth portfolios, with the mature portfolio accounting for the majority of revenue. Despite the severe impact of the COVID-19 lockdown regulations on the Tower Build programme during the first half of FY2021, we accelerated the Tower Site Acquisition programme, resulting in at least 2 000 sites in the permitting phase. We obtained 368 building plan approvals and completed the construction of 116 towers. These towers are tenanted by Telkom Mobile, the anchor tenant for the new build pipeline.
We completed our proof of concept for a small cell solution to prepare for 5G site rollout and are searching for sites that will be suitable for our clients’ 5G network coverage requirements. New leases were concluded for the existing portfolio, increasing rental revenue as our major clients improved their network coverage and capacity for their customers during the lockdown period.
As part of our new products and solutions, we started building 10 in-building coverage solutions in prominent shopping centres around the country and plan to build more in FY2022.
As part of our new products and solutions, we started building 10 in-building coverage solutions in prominent shopping centres around the country and plan to build more in FY2022.
Portfolio
Tenants
Additional leases
* Mobile Network Operator (MNO).
Commercialise the property portfolio
The property portfolio segmentation process advanced further, resulting in the refinement and allocation of core and non-core properties and advanced development planning to commercialise the portfolio. The property decommissioning process and working remotely for the entire financial year contributed positively to the reduction of property operating costs.
Our development projects are based on the best use of land approach as informed by the demand and supply dynamics of the particular market. We continued to review the planned development schemes and to adapt them per the site and the market conditions. We have advanced the planned projects further into the development planning phase and are nearing the investment decision and project development phase. The development opportunities will be housed in special purpose vehicles to enable investment partnerships with suitable external investors.
Enhance building costs and operational efficiencies
Our Property Cost Optimisation programme included:
- Decommissioning assets no longer required for operational purposes
- Planning and implementing utility efficiency and cost-saving initiatives
- Disposal of assets that are not suitable for operations and development
Working remotely further contributed to the reduction in property operating costs and our carbon footprint. Despite the inherent above-inflationary escalations on electricity and water rates, utilities and facilities management costs increased by R96 million or 4.4% to R2 280 million. This incorporates savings of R110 million being achieved on property operating costs against our planned spend for the year. Our carbon emissions reduced significantly. Refer to natural capital.
Our disposal efforts experienced challenges during the year due to a prolonged transaction and property transfer process under the COVID-19 operating environment. The delays improved as the lockdown restrictions were relaxed. As at the end of the year, 16 properties valued at R9.9 million were transferred to new buyers while an additional 19 properties amounting to R10.6 million remain in the transfer process. We continue to identify more properties for disposal while monitoring the market’s appetite for acquiring non-revenue-generating assets.
Looking forward
We expect the trading conditions for FY2022 to remain suboptimal as a result of the continued challenges imposed by the COVID-19 environment. We plan to increase the efforts in driving our business growth objectives by continuously adapting and choosing how we would best incorporate further adjustments necessary to navigate the uncertainties caused by the pandemic.
Gyro will continue to execute on the two key drivers of revenue growth for the masts and towers business, which are to increase tenancy on existing towers and growing the portfolio with new sites. The mature masts and towers portfolio remains crucial to the network operations of the major mobile network operators in South Africa. We plan to further advance the Tower Build programme to meet the demand for tower co-location for the internal and external clients. The aggressive permitting of new strategic sites will continue in the new year for the anticipated new spectrum availability, densification for 4G/5G and penetration of underserviced markets (townships and second tier towns). Our small cells pipeline will proactively provide densification solutions for our major clients. We plan to roll out more in-building coverage solutions in commercial buildings in the new year.
The commercial real estate sector remains under pressure from the weak economic conditions and the reduced demand for new space. Tenants for office and retail property remain under financial strain, resulting in weaker performance for these property sectors. Our development projects remain underpinned by diligent and disciplined assessment of market conditions and demand dynamics at the site level. We will continue to prioritise property development planning to property sectors with stable and growing demand for space and will apply the utmost caution before starting the construction of any project.
The decommissioning of properties and the consolidation of office space in the different markets due to remote working will enable us to reduce property operating costs further. We will dispose of properties that are no longer suitable for operations and that are not part of the development pipeline in order to completely remove the associated property operating costs while generating additional revenue from the sale proceeds. Utility efficiency enhancement initiatives and capital investment planned for the new year will contribute further to the reduction of utility costs for the large utility consumption properties.
The new year ushers in a new opportunity for Gyro in the carrier neutral data centre business space. We plan to commence implementation of the data centre business plan during the year and strongly believe it is very compatible with our current focus in masts and towers and real estate. We will focus on optimising the existing data centres while at the same time planning new builds and edge data centre opportunities to grow the new business. The new data centre business is part of the value strategy for the property portfolio.
The masts and towers advanced value unlock will progress in the new year, with the plan to select and execute on a more suitable option for the unlock during the year. The main intention of the advanced value unlock is to affirm the enterprise value of the tower business and the position of the business as a leader in the local independent tower company market. Our towers are owned within Swiftnet and managed by Gyro Group as the external manager, and the advanced value unlock should affirm the value for this business.
Image: Employees working on a Gyro tower
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