Telkom’s R13-billion problem

Telkom’s financial results for the year that ended 31 March 2023 revealed a company in financial distress without concrete plans to turn the situation around.

The group’s revenue remained flat at R43.14 billion, and net income fell by 84.7% — from R2.6 billion in 2022 to R346 million in 2023.

However, looking at the net income figure in isolation does not paint a complete picture of Telkom’s poor performance.

Telkom realised a significant impairment loss on two of its cash-generating units, Openserve and Telkom Consumer.

The total impairment loss amounted to R13 billion, which brings the company’s net loss for the year to R9.97 billion.

Telkom did not include this impairment in its income statement, as these assets are now classified as “assets from discontinued operations”.

An impairment loss occurs when the value of an asset in the company’s books no longer represents its fair value.

The company then writes down the asset’s value, known as an impairment loss, and the impairment is recorded as a loss on the income statement.

Although the impairment loss is not a cash outflow, it represents a real expense the investor will experience.

This is because the impairment directly impacts Telkom’s total asset value, making the company worth less than before the impairment.

Telkom’s total asset value fell by R6.4 billion, and its equity fell by R9.91 billion. It is now equivalent to the equity value last seen in 2015.

The impairment loss can, therefore, be associated with a significant decrease in Telkom’s value and can be expected to affect the share price accordingly.

Since 2020, Telkom’s average share price per book value of equity traded at 0.57 times equity. It shows that the market values Telkom at a lower price than the net asset value in the books.

Telkom’s equity per share dropped from R69.51 to R49.29 over the last year. If the market values Telkom’s equity in the same light, Telkom’s share price should fall to about R28.10 per share.

On the day of the results, Telkom’s share price fell 7% to R28.60 a share. It is, therefore, in line with how the market reacted previously. Its share price traded up throughout the week, closing at R33.69 on Thursday.

Daily Investor asked Telkom why the R13 billion impairment loss was not included in the consolidated statement of profit or loss. However, Telkom preferred not to answer the question.

Telkom assets and equity

This article was first published by Daily Investor and is republished with permission.

Now read: Telkom is in deep trouble

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Telkom’s R13-billion problem