Telkom considers writing off legacy network

Telkom is considering writing off the carrying value of its legacy network through a non-cash impairment charge, the encumbent announced on SENS on Wednesday (5 June 2013).

“For a considerable time the price at which Telkom shares have been trading at has been significantly lower than the net asset value (“NAV”) of a Telkom share,” Telkom said.

In 30 September 2012, the NAV per share was R57, Telkom said, noting further that when the carrying value of an entity’s net assets is more than their market capitalisation, it is an indication that the carrying value of the assets may be impaired.

An impairment charge is akin to an accelerated depreciation charge, Telkom said, which has no impact on company’s cash position, low indebtedness and ability to fund its capital programme from its own resources.

Telkom said that a non-cash impairment charge – which “may” follow a review by its board – would not significantly impact that company’s operational cash-flow (Ebitda).

The company said it could not confirm the amount of the impairment charge at this stage, but would update the market once it was certain of the impact of the charge on its basic earnings per share.

“Telkom, in line with other fixed line incumbents globally, has for more than a decade, faced technology changes, competition from mobile operators and an evolving regulatory landscape which have contributed to lower investment returns from its legacy network assets.”

“The Group continues to invest significant capital into upgrading its fixed and mobile network to meet the increasing needs of customers, particularly regarding data transmission.”

“The migration of services from legacy assets to superior Internet Protocol-compliant assets will rapidly escalate over the next few years to ensure that services remain differentiated from competitors and competitively priced.”

“This transition will also enable the Group to improve operational efficiency, as this is a major benefit of new technology,” it said.

Telkom will release its results for the year ended 31 March 2013 on 14 June 2013.

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Telkom considers writing off legacy network