Big trouble for Telkom

Telecommunications group Telkom has warned that it is anticipating a huge blow to its headline earnings for the full year ending 31 March – saying it could even swing into a loss.

In a trading statement on Wednesday (17 May), the group said that it anticipates seeing its headline earnings per share (HEPS) tank between 85% and 105% from the previous comparable period.

This would see its HEPS drop between 489 to 604 cents per share, resulting in a final number ranging from a loss of 29 cents per share to earnings of 86 cents per share (2022: 576 cps).

On a normalised basis – excluding once-off costs – the picture is slightly better for the group, but the hit to earnings is still severe, with a reduction between 60% and 80%.

According to the group, the massive blow comes as a result of marginal revenue growth emanating from migrating legacy to new generation technologies; the deliberate upfront investment in working capital for handsets and equipment; costs associated with the impact of accelerated load shedding caused by an unreliable power supply; and inflationary cost pressures.

The group added that costs associated with its “restructuring” – ie, retrenchment processes – as well as impairment costs have also impacted its bottom line.

“A provision for the restructuring process, as set out in a SENS announcement released on 14 further impacted basic earnings and headline earnings in the current period. The expected impairment charge, estimated at R13 billion, impacts basic earnings in the current period,” it said.

Telkom said that the board is currently considering an impairment of assets charge in respect of the group’s cash-generating units, namely Openserve, Telkom Consumer, Gyro and BCX, in the amount of approximately R13 billion (excluding tax effects). This follows Telkom’s strategy to accelerate its migration to newer technologies, it said.

It said that significant market changes and current economic conditions – including accelerated load shedding, low anticipated economic growth rates and a high interest rate environment – coupled with evolving technological advancements have had an adverse effect on the group.

“Another factor that determines whether or not an impairment of assets is required is whether the carrying value of net assets is higher than the market capitalisation, which is the case for Telkom,” it said.

The impairment charge is still to be reviewed by the board, it said.

Regarding its restructuring costs, as previously announced by the company, around 15% of its workforce will be impacted by a retrenchment process which is part of a broader cost-saving strategy being implemented at the group, as well as better equipping itself to meet future demands.

In line with the consultation process with unions, Telkom extended voluntary severance packages and voluntary early retirement packages to all employees in the group.

“The Group is currently engaging its social partners, including concluding organisational manning, and is on track to achieve the initial commitment. The cash outpayment relating to the restructuring will occur in the 2024 financial year,” Telkom said.

A further update will be provided with the release of the annual results for the current period.

Telkom said it will publish its annual results for the year ended 31 March 2023 on or about 13 June 2023.

Read: Telkom to sell stake in Openserve