Productive capital
Migration of clients to next generation technologies
The shift to high-margin IT Business
Sales mix improvement (Service vs Product revenue)
IT Hardware and Software revenue up 42.7% to R3 082 millions
Growth in next-generation IT business
Completed 10 hybrid power solution sites used for testing and data
Certified as employer of choice in 2023
Challenging trading environment and increased competition
Sales mix impacting EBITDA performance
Decline in Legacy subscriptions and usage
During the year under review, the ICT industry benefited from the easing in global supply chain constraints and recovery in the availability of chipsets.This resulted in an upturn in technology refresh projects by enterprises. However, elevated loadshedding levels, high local inflation and deteriorating economic conditions led to financial constraints on enterprises. This is reflected in BCX's performance for the year.
The IT business continued to experience revenue growth as it benefited from improved global supply chains and took advantage of the increase in IT transformation projects by enterprises. This positively impacted our product (hardware and software) business. However, the resultant revenue mix negatively impacted the margins of the business.
The Converged Communications business remained under pressure, as we continue to migrate clients from legacy technologies to more affordable next-generation technologies. Revenue in this business unit was impacted by both the planned migration from legacy to next-generation services and the accelerated commoditisation of data and voice related services.
Revenue for the year was R14 252 million, a decline of 0.2% compared to prior year. Current year performance is supported by the growth in the IT business, which is partially offset by declines in the Converged Communications business.
The IT business experienced growth for the seventh consecutive quarter, with IT clients growing by 9.7% year-on-year. Revenue increased by 9.1% to
R7 644 million, owing primarily to the hardware and software business growth of 42.7%.
The positive IT hardware and software business performance is largely due to the improved order fulfilment and execution of technology refresh and IT infrastructure transformation projects.
The faster growth in hardware and software revenues against services revenues impacted the profitability of the business. The focus of the Group is to prioritise
high-margin annuity
services revenues.
The Converged Communications business revenue declined by 9.2% to
R6 608 million, largely due to declines in fixed-voice revenues and data revenues. Legacy voice revenues experienced
pressure, as we continue the five-year migration strategy from legacy to next-generation. Both controllable churn (BCX-driven migration) and uncontrollable churn continued to add revenue
pressures on the business, as customers move to newer technologies. The number of telephone lines have declined by 13.3% and voice minutes by 14.8%. In line with our goals to grow nextgeneration
Converged Communications revenues, we saw an uptake in next-generation data services.
offerings. However, average revenue per client declined due to commoditisation of these products and services, and legacy broadband subscribers declined at a more rapid rate than the growth in next-generation broadband subscribers, resulting in an overall decline in broadband subscribers of 16.6%.
EBITDA, excluding restructuring costs of R198 million, declined by 2.4% to
R1 807 million, mainly due to reduced margins of the Converged Communications business because of the
migration of legacy to
next-generation solutions and customer churn, as well as the unfavourable revenue mix in the IT business. Compared to the prior year, EBITDA margins decreased by
0.3 percentage points, resulting in an EBITDA margin of 12.7%.
Financial performance under pressure
14 252
Revenue
Rm
FY2022: 14 281
FY2021: 14 712
12.7%
EBITDA margin
%
FY2022: 13.0%
FY2021: 13.8%
1 807
EBITDA
Rm
FY2022: 1 852
FY2021: 2 032
2.4%
12 514
Total expenses
Rm
FY2022: 12 493
FY2021: 12 756
BCX embarked on a five-year legacy-tonext-generation migration of the Converged Communications products and services in 2019. During the two years of the COVID-19 pandemic the migration initiatives slowed down as enterprises paused most of these projects – extending the original glidepath by about 18 months. During the year under review, migration projects resumed, resulting in revenue declines. However, revenue decline rates, particularly those of data revenues, are lower than pre-COVID rates as we approach the tail end of the migration glidepath.
Data-related services have crossed a pivot point, with next-generation services comprising about two-thirds (73%) of the revenues. Voice services still comprise high legacy services – 85%. However, these legacy services are localised to a few specific sectors of the market.
The Converged Communications business focus remains the industrialisation of products and services, cost optimisation to reduce cost to serve and the acceleration of the legacy to next-generation migration. We introduced XaaS services, UCaaS (unified communication as a service) and CCaaS (contact centre as a service), to accelerate the migration to nextgeneration services.
Converged Communications remained under pressure
6 608
Converged communications revenue
Rm
FY2022: 7 274
FY2021: 7 349
1 346
CPE1 and sundry revenue
Rm
FY2022: 1 272
FY2021: 1 029
2 734
Data revenue
Rm
FY2022: 3 022
FY2021: 3 139
2 528
Voice revenue
Rm
FY2022: 2 979
FY2021: 3 181
1 CPE refers to customer premises equipment.
Next-generation revenue/Data access
27%
NGN data access revenue
Legacy
%
FY2022: 34%
FY2021: 50%
73%
NGN data access revenue
Next-generation
%
FY2022: 66%
FY2021: 50%
Unified Communications decline
3 872
Total
Rm
FY2022: 4 201
FY2021: 4 166
1 344
CPE revenue
Rm
FY2022: 1 222
FY2021: 985
2 528
Voice revenue
Rm
FY2022: 2 980
FY2021: 3 181
The IT business for BCX comprises two key revenue pillars: the Cloud Platform Solutions (CPS) business, which is the ICT infrastructure services arm of BCX, and the Digital Platform Solutions (DPS) business, which is the digital services arm of BCX.
IT business continued to experience revenue growth
7 644
IT business revenue
Rm
FY2022: 7 007
FY2021: 7 363
Annuity revenue ratio
50%
New
%
FY2022: 41%
FY2021: 59%
50%
Existing
%
FY2022: 59%
FY2021: 63%
Commited to next-generation IT
309/145
Cybersecurity*
Rm
FY2022: 270/140
FY2021: 147/146
164
AIOps
Rm
FY2022: 152
FY2021: 120
176
IoT Solutions
Rm
FY2022: 159
FY2021: 133
* Cybersecurity services and product
Cloud Platform Solutions (CPS)
The Cloud Platforms Solutions business showed strong year-on-year growth, on the back of strong IT hardware and software sales growth of 42.7%. Significant technology refresh projects by our clients, easing of chip shortages, and clearing of prior year backlogs led to notable growth in the hardware business.
The service business also demonstrated resilience in maintaining its revenue performance in the face of significant market pressures. The Cyber Security business saw growth in demand for security products, security advisory services and managed detection and response services from its recently launched Security Operations Centre. The business delivered revenue growth of 10% and, in line with plan, turned profitable during the year.
There is increased demand for outsourcing and service integration as clients focus more on driving business value from their ICT infrastructure. The pressures on the local economy are reflected by our clients' demand for value for money as they embark on digital transformation projects, seeking savings beyond just their ICT budgets. The unstable electricity supply had an impact on our business, due to high diesel usage, power generation costs in our data centres and our clients' inability to trade during power cuts.
Digital Platform Solutions (DPS)
Compared to the prior year, DPS grew revenue by 1.0%, and delivered double digit bottom-line growth. The revenue growth was driven by double-digit growth of the Internet of Things (IoT) business (11.1%), an 8.1% growth in the Artificial Intelligence for IT Operations AIOps business and a 2.4% growth in the SAP business.
The key focus of these areas was to add new clients to our portfolios and to diversify our product/service offerings. The SAP business also became less dependent on internal clients (within the Telkom Group) and added new clients from the public and private sectors. The business successfully completed three SAP S4HANA migrations during FY2023, which has established us as a leading player in the market and demonstrates our capability to support our clients with the S4 migration agenda.
We have recognised the accelerated cloud migrations in the recent past as our clients seek to drive digital experiences and innovation for their customers. We successfully acquired Dotcom, a Microsoft Azure solutions company, to further strengthen our cloud offerings and solutions.
The other key focus areas of the business unit are to complete the modernisation of our own IP solutions and extend Dotcom’s footprint into other industries to leverage our Microsoft licensing client contracts.
Our clients are transforming their businesses to enable more end-to-end agility in response to shifts in consumer behaviour and macro‑economic market impacts. As a result, they are buying differently – shifting their investments from traditional ICT products and services to digital transformation technologies. On the other hand, cloud‑driven convergence is evolving into a key enabler for digital transformation and an area of focus for enterprises looking to replatform their enterprise architecture.
These changes by enterprises require shifts in strategy and business model by BCX. Accordingly, we developed our digital and cloud advisory capability and acquired Dotcom, to provide agnostic advisory services to our current and new clients on their cloud journeys toward the public and local cloud environments.
BCX signed an exclusive distribution agreement with Alibaba Cloud, and we successfully created a new business unit to manage this partnership. We started with the implementation of a local public cloud within one of our data centres and in a third-party data centre, based on the Alibaba Apsara stack. We plan to launch services from this local public cloud in FY2024.