In line with Swiftnet’s strategic objectives, we continue to commercialise the masts and towers portfolio. Our growth strategy entails increasing tenancy on the existing portfolio, acquiring sites and building new towers, as well as expanding the range of products and preparing for the implementation of 5G by our clients. Swiftnet’s performance was impacted by termination of sites, continued focus on modernisation from our Mobile Network Operator (MNO) customers and the change in cost allocation methodology in the second half of the year. We remain a very important partner to our customers as they deliver connectivity services to their customers throughout the country.
Key strategic focus areas
Growth in revenue was impacted by termination of sites by Openserve and one of our external MNO customers, while other MNOs either modernised their equipment or awaited the spectrum auction before committing to numbers for additional sites.
In the current year, we continued on the strategic course to commercialise and grow the productive portfolio through new tenancies, construction of new towers and IBS as well as the development of value-add services for our clients. During FY2022, we built 152 towers and 17 IBS sites, bringing our total productive portfolio to 3 916 towers. We also decommissioned commercially non-productive towers as we continued to optimise the operational efficiency of our portfolio. We refined our organisational structure to enhance our operational capacity and to service our client more effectively at the regional level.
The revenue from masts and towers increased by 4.4% to R1 292 million and was driven by commercialising the existing portfolio, new tower builds and the rollout of IBS. This performance includes the impact of terminations and an ongoing focus on modernisation from our MNO customers. We expect modernisation to continue over the next year coupled with deployment of new base station sites as the MNOs deploy their respective newly acquired permanent spectrum allocations.
EBITDA for masts and towers declined by 8.6% to R909 million and the EBITDA margin contracted to 70.4% compared to 80.4% in the previous year. The decline was due to a rebasing of costs resulting from the implementation of a new Group-wide methodology of allocating property operating costs (utilities, facilities and security-related costs) across Telkom’s business units and subsidiaries. This direct allocation methodology is driven by site presence and usage. This new methodology was made prospectively and came into effect in the second half of the financial year, the impact of which was net neutral across Telkom Group as it offset Swiftnet and Openserve. On a normalised basis, excluding the impact of this new methodology, EBITDA for masts and towers increased by 2.7% to R1 021 million compared to the prior year with the EBITDA margin at 79%.
| * | The decline in FY2022 was driven by the refinement in the property operating cost allocation methodology during the second half of the financial year across the different Telkom business areas. On a normalised basis, excluding the impact of the refinement in property operating costs, the EBITDA increased by 2.7% from the prior year to R1 021 million, at a 79% EBITDA margin. |
| ^ | EBIT = Earnings before interest and taxes; PAT = Profit after tax |
Notes:
| 1 | Net decommissioned comprising -591 sites decommissioned; +83 new sites through additional database clean-up/adjustments |
| 2 | 243 New towers includes 74 towers completed in FY2021 and 169 towers started and completed in FY2022. FY2021 previously not included as they were awaiting power. |
Notes:
| 3 | Net decommissioned comprising -53 sites decommissioned; +27 new sites through additional database clean-up/adjustments |
In the next financial year we expect that growth in tenancy from Telkom Mobile will continue while other major MNO customers begin to expand their market penetration in line with their newly acquired spectrum and increase the capacity of their existing sites to accommodate 5G. However, we expect our top line to be impacted negatively by Openserve's decommissioning of legacy equipment and further terminations from one of our clients over the next year.
We will continue to execute on the key drivers of revenue growth for the masts and towers business, which are to increase tenancy on existing towers, growing the portfolio with new sites, rapid deployment of new products and services, and preparation for 5G.
We plan to further advance the Tower Build Programme to meet the demand for tower co-location for internal and external clients. The aggressive permitting of new strategic sites will continue in FY2023 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. In FY2023, we also plan to roll out more IBS in commercial buildings.
We will continue to explore the most optimal way to unlock the full valuation of the Swiftnet business in the new financial year. It remains that the full value of the Swiftnet business is not recognised in the valuation of the Telkom 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.
