Telkom issues major profit warning — headline earnings plummets up to 105%

Telkom has warned shareholders that it expects an 85% to 105% decline in headline earnings per share when it reports its results for the 2022/23 financial year next month.

This translates to an expected headline earnings range of 28.8 cents per share loss to 86.3 cents per share profit.

Even when normalized to take into account once-off restructuring costs, Telkom forecasts headline earnings 60%–80% lower than last year.

Its basic earnings look even worse, with Telkom warning shareholders to expect a 465% to 485% drop, translating to a R19.59 to R20.66 loss per share.

Normalized for its once-off restructuring costs, Telkom said its basic earnings will still be 70%–90% lower than last year.

South Africa’s former telecommunications monopoly said the difference between its basic and headline earnings is due to impairment, and profit or loss on the sale of assets.

“Shareholders are advised 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),” Telkom said.

“This follows Telkom’s strategy to accelerate its migration to newer technologies.”

Telkom said 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 adversely affected it.

“In terms of IAS 36, 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 capitalization, which is the case for Telkom,” it stated.

“The non-cash impairment charge, that may materialize following the review by the Board, will not impact the Group’s earnings before interest, tax, depreciation and amortization generated from operations, will have no impact on Telkom’s cash position nor will it impact the Group’s compliance with debt covenants and its ability to fund its capital expenditure programme.”

Regarding restructuring costs, Telkom reiterated that up to 15% of employees in the group have been impacted by efforts to cut its workforce.

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

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


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Telkom issues major profit warning — headline earnings plummets up to 105%