South African telecommunications group Telkom (TKGJ.J), opens new tab raised its dividend payout ratio on Tuesday after strong cash flow and profit growth, helped by rising data demand and cost ​cuts.

The country’s third-biggest mobile operator has been growing its mobile and fibre businesses ​while managing the decline of legacy services such as voice and copper-based ⁠broadband.

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Migration to fibre and fixed-wireless products, as well as cheaper pricing has fuelled demand ​for data, with mobile data revenue rising 10.5% and fibre-related data revenue up 6.3% in ​the year to March 31.

Telkom, majority owned by the government, reported a 30.1% rise in headline earnings per share to 708.5 cents. Earnings before interest, tax, depreciation and amortisation (EBITDA) increased 13.3% to 12.5 billion rand ($772 million).

Free cash flow ​rose to 3 billion rand from 2.7 billion rand the previous year, driven by ​tighter cash management, cost reductions, lower lease payments and reduced financing costs.

Reflecting the stronger performance, the board ‌lifted its ⁠dividend payout ratio range to 40% to 60% of free cash flow, up from 30% to 40%.

Telkom declared a final dividend of 270 cents per share, up 65% having resumed payouts last year after a four-year suspension.

Shares in Telkom initially jumped 6.6% on the news before paring ​gains to trade ​1.33% higher in the ⁠afternoon.

GROWTH FROM UNDER-SERVED REGIONS

Growth in the mobile unit continued to outpace larger rivals Vodacom (VODJ.J), opens new tab and MTN (MTNJ.J), opens new tab, with service revenue rising 6.8%, supported by a 10.3% increase in prepaid revenue as ​customers responded to low-cost data and voice bundles.

The group is also ​targeting under-served ⁠areas outside of the big cities to expand its subscriber base.

Chief Executive Serame Taukobong told Reuters that the strategy is driving results.

“As customers are now moving from 2G voice, they are ⁠looking for ​best value-fit data propositions and they’re finding that sweet ​spot in Telkom,” Taukobong said.

Telkom reported double-digit revenue growth from non-metro regions during the year.

($1 = 16.2551 rand)

source: Reuters