Telkom subsidiary BCX is continuing to underperform, as it saw a 10% reduction in revenue.
This emerged after BCX parent Telkom this morning announced its financial results for the year to 31 March 2021, showing a bounce in full-year headline earnings.
While other Telkom units, such as mobile business, saw healthy earnings growth, BCX continues to struggle.
In a statement, BCX says the severe financial pressure experienced by customers led to reduced IT spend and delays in their capital expenditure.
However, it says the slight economic recovery seen in the later part of the year resulted in pockets of growth opportunities.
Jonas Bogoshi, CEO of BCX, says: “The pandemic did materially affect us, with varying degrees of lockdown being the main driver for our 10% decrease in revenue. That said, our new operating model made way for significant transformation of our operational capabilities that has made the business more resilient and helped deliver an increase of 6.6% in EBITDA [earnings before interest, taxes, depreciation and amortisation].”
Negative revenue performance
According to the company, four key factors impacted the negative revenue performance, resulting in a decrease of 10% to R15.7 billion.
It explains that customer behaviour prioritised cost-efficiencies and consuming more services and products at a reduced amount; corporate customers deferred capital expenditure and scaled down IT projects; reduced spend on enterprise connectivity due to an increased number of employees working from home during the national state of disaster; and reduced fixed voice revenue due to less traffic in offices during lockdown.
BCX adds that including the impact of the international subsidiaries’ divestments, the IT business revenue declined by 7.9% to R8.3 billion, mainly attributable to the adverse effects of the lockdown and low economic activity.
IT service revenue, excluding the international operations, declined by 7.9% to R7.7 billion.
Converged communication revenue declined by 12.4% to R7.3 billion, mainly attributable to fixed voice revenue declines of 17.5%.
According to BCX, this is due to customers’ continued migration from legacy voice to next-generation products, the negative impact of lockdown on voice minute volumes, the accelerated change in customer preferences towards virtual platforms; and increased competition.
Despite the decline in revenue, EBITDA increased by 6.6% to R2.4 billion due to cost efficiencies. Direct costs and operating expenditure declined by 12.1% and 12.7% respectively, and the EBITDA margin increased from 13.2% to 15.7%.
Extensive reorganisation
Looking beyond the near-term, BCX says it will continue to invest in high-quality growth. Its commitment to driving operational sustainability is evidenced by two strategic organisational initiatives.
“Firstly, to realign our business strategy in response to the ‘the new normal’. Secondly, an extensive re-organisation of our operating model aligned to the new strategy,” adds Bogoshi.
It adds that a fundamental shift in BCX’s new operating model was the separation of the IT business into two focused business areas – Digital Platform Solutions and Cloud Platform Solutions – due to the increased reliance on new-generation cloud and digital technologies by remote and evolving business environments.
It believes this will have a direct impact on its operations and promote greater operational efficiency and a more client-centric approach. “This independent focus will lead to a range of strategic benefits for clients with seamless operational efficiencies,” says Bogoshi.
According to the IDC: “Digital transformation is set to drive a large proportion of growth in the next five to 10 years, which will continue to ensure steady demand for professional services."
“In response to economic pressure, companies are focusing more on insights and analytics to enhance visibility and decision-making while reducing their cost-to-serve. BCX is optimising its traditional ICT environment and reducing its cost to serve by automating IT operations,” says Bogoshi.
He adds that BCX’s Artificial Intelligence for IT Operations offering was refined based on learnings from its deployment within the group, and it was taken to market in FY21. “This, together with our continued focus on security and software-defined networking, serve as proof-points of our capabilities in digital transformation.”
BCX carried out focused investments on expanding its technology offerings, including its SD-WAN capabilities by implementing application-centric infrastructure in its data centres. “SD-WAN is generating interest as clients are looking to invest in next-generation secure, intelligent networks and the benefits that they bring,” says Bogoshi
While the economy should slowly recover as the vaccine roll-out continues, international experts are predicting there is a quiet technology revolution, says the company.
“Perhaps that is the biggest step for businesses as we all look to rebuild the economy and how we improve critical services to all – overcoming inhibitions directed towards innovation, particularly digital innovation,” concludes Bogoshi.
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