Telkom drops dividend
Telkom has decided not to declare a dividend for the year to March 31 2012. In a statement, CEO Nombulelo Moholi said “we have agreed with the board an approach to dividend payments that is in the best longer term interests of Telkom.
“The ordinary dividend has been considered with reference to Telkom’s current and expected future challenges, performance, debt and cash flow levels. Telkom’s strategic objectives of network transformation and the building of its mobile business will see dividends being considered on an annual basis based on the performance of the group.
“While our current financial position should allow us to fund network transformation and build our data driven mobile offering, the board has decided that it is prudent to allow for more internally generated funding for the capital expenditures planned over the next three years. This will better position Telkom to weather uncertainties as we advance our value building strategy.”
This move was not unexpected, although talk in the market was of a far lower dividend ahead of Friday’s announcement. The pressure on Telkom’s cash flow is evident, with free cash flow dropping to R2.1bn (from R2.2bn). The company says this is mainly as a result of higher mobile operating expenditure (and was partially offset by its settlement in the Telcordia dispute).
Its cash balance has dropped from R3.79bn at the end of full year (FY) 2010, to R1.77bn at the end of FY 2011, to R1.16bn as of March 31. Telkom did manage to repay a portion (R1.3bn) of its syndicated loan during the year, leaving it with interest bearing debt of around R6bn. Of this, a further R1.289bn is due in the 2013 financial year.
The decision will no doubt put further pressure on its share price, given that Telkom has traditionally had a high dividend yield (before Friday’s numbers, this was 7%). Last year it paid a dividend of 145c per share. In the 2010 financial year, it paid a dividend of 125c per share, plus a special dividend with a portion of the proceeds from the sale of its Vodacom stake of 175c per share.
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