Telkom impairs R12 billion in assets

Someone want to explain what this means for us dumb people?
 
Basically, impairment in accounting terms is a condition where the value of the firms assets, per their financial records, are higher than the market value / future cash inflows it could obtain from usage of these assets. When this is the case a company is, under accounting principles, obliged to write down the value of these assets to the value it expects to obtain from it in the future.
 
Joe505 said:
Basically, impairment in accounting terms is a condition where the value of the firms assets, per their financial records, are higher than the market value / future cash inflows it could obtain from usage of these assets. When this is the case a company is, under accounting principles, obliged to write down the value of these assets to the value it expects to obtain from it in the future.
Click to expand...

Thanks also did not understand that
 
Here's an explanation from a previous article on the subject:

When a asset's carrying amount (the price they bought it at minus accumulated depreciation + impairment) is larger than the Recoverable amount (the amount they can get by selling that asset on the market: either the fair value - cost to sell or value in use)

Then that asset should be valued at recoverable amount for faithful representation and for more useful economic data. So you decrease the carrying value to recoverable amount which is a reduction in the value of asset, which is the impairment loss. No cash affected.

Impairment loss is classified as expense under profit and loss there by cutting the profits of the entity. Thereby reducing tax. With such huge impairment loss with this move I wouldn't be suprised if Telkom didn't pay taxes for the next few years. Lol
Click to expand...

Posted by Adoxographist in the comment section of the following article:
http://mybroadband.co.za/news/telecoms/79523-telkom-considers-writing-off-legacy-network.html
 
Haha. As far as I know the value of Telkom's shares has nothing to do with the value of their assets. Their shares are worthless because they keep losing billions from poor investment decisions and government interference.

Telkom shares were great just a few years ago. Awesome growth. Then they [were probably forced to] invest helter skelter in the rest of Africa and lose billions. Then the Government refuses them the right to go through with the KT deal and Telkom shares value drops. Etc... Etc...

That is still an amazingly valuable network assets we are talking about here.
 
'Telkom expects basic earnings per share to be R22.29 to R23.43 lower for the year ended March 2013.'

This has got to be wrong ^ - either R2.229 or 22.29c?
 
Its an accounting thing mostly. What is put in square brackets is an analogous proposition:
Telkom has attributed\assessed a certain monetary value to its physical network infrastructure [the same as a home owner has a value attributed to their house]. Because the infrastructure is owned by Telkom it forms part of the net asset value per share which tells an investor how much "stuff" underlies their investment in a company - Telkom has had a NAV per share of R 57 but this isn't what the shares have been trading at, in effect showing that the market doesn't hold Telkom's assets as worth the value that has been attributed [it doesn't matter what value a home owner attributes to their home when they want to secure a mortgage backed loan - it matters how much the bank values the home]. Telkom's earnings and a whole bunch of other things are often looked at in light of the NAV per share and if the asset value is overstated Telkom's performance looks different; the current setup lends itself to Telkom charging more for certain services based on unrealistic demands on a return on investment of a particular asset [if a homehomer thinks his house is worth several million rand he isn't going to rent it out for a few hundred rand a month]. The overvaluing may be because of faulty provisioning for depreciation and insufficient maintenance [if you let your multi million rand home stand around with over grown grass and vandals it fail to do repairs for a few years it will be worth considerably less].

Now Telkom has reassessed the value of some of its assets and needs to adjust their books and in the process make better business decisions. I suspect that the initial overvaluing actually has its roots in the formation of Telkom as a company and that there has been a general understatement of depreciation on telecommunications infrastructure. As far as I know almost every major fixed line teleco in the world has had an asset impairment in the last 20 years.

I think that most people have long accepted that Telkom's legacy network is overvalued and so this is really a correction that will hopefully guide the company into making better decisions on a whole array of things. It might make government realize that Telkom is less of a "cash cow" than is often thought; more importantly it means that the Line Access Deficit is lowered and various costs that follow are affected. For the end user that means we might see a nice set of tariff changes with the next round - Telkom's pricing should be changing within the next few months - September I think - although what may occur is that they add more "value" to the pricing system. For the industry the revaluing of assets means that the leasing costs of facilities must come down and this is beneficial for the entire ECN ecosystem: The single biggest hope is that it will drive a further reduction on IPC charges which means cheaper/better internet but a proper round table discussion on lowering internet charges between the ISPs and operators is what is actually needed, unfortunately the 30% reduction may have already had this impairment in mind.

The cynic in me suspects that ICASA knows that Telkom will be in steam for LLU of pre-MSAN infrastructure by early next year. Then a whole new fight about the wireless local loop and MSAN infrastructure will be ripe for discussion etc ...
 
Great post, as always, Paul. It may also be that they have too many technologies in the same geographical area servicing too few customers. Example... DECT, copper, 3G and satellite (and soon LTE) for a small customer base in a rural area.
 
Great post and thanx Paul for clearing up this, I feel hopeful that things will turn out for the best for us consumers.Lovely.:love:
 
http://www.bdlive.co.za/business/technology/2013/06/16/jury-is-still-out-on-ailing-telkom
Chief financial officer Jacques Schindehütte said the impairment would also allow for more competitive pricing.

“What has been happening at Telkom is that the managers are obviously told (they) can’t price under cost and in taking cost into consideration they take that high value of the cost and lose more and more business (because they are) fighting people that are selling products for half the price,” said Mr Schindehütte.
Click to expand...

Read this in today's Business Times - backs up what Paul was stating...

Paul Hjul said:
<snip>

I think that most people have long accepted that Telkom's legacy network is overvalued and so this is really a correction that will hopefully guide the company into making better decisions on a whole array of things. It might make government realize that Telkom is less of a "cash cow" than is often thought; more importantly it means that the Line Access Deficit is lowered and various costs that follow are affected. For the end user that means we might see a nice set of tariff changes with the next round - Telkom's pricing should be changing within the next few months - September I think - although what may occur is that they add more "value" to the pricing system. For the industry the revaluing of assets means that the leasing costs of facilities must come down and this is beneficial for the entire ECN ecosystem: The single biggest hope is that it will drive a further reduction on IPC charges which means cheaper/better internet but a proper round table discussion on lowering internet charges between the ISPs and operators is what is actually needed, unfortunately the 30% reduction may have already had this impairment in mind.
Click to expand...
 
what worries me in the BD article is:
Mr Maseko said the future of Telkom Mobile was being reviewed by the board and a concrete strategy around this was still being formulated.
Click to expand...
I honestly think retiring the 8ta brand is a monumental failure. 8ta needs to be used as the brand for all light consumer products including fixed voice lines
 
Not quite sure why this is news? The market has known that the assets are overvalued for years & nobody else cares seeing how its just an accounting entry with zero real world effect.

Paul Hjul said:
what worries me in the BD article is:

I honestly think retiring the 8ta brand is a monumental failure. 8ta needs to be used as the brand for all light consumer products including fixed voice lines
Click to expand...
Doesn't really matter one way or the other imo. With the massive interference from government its pretty much guaranteed to be a disaster regardless of what clever plan they come up with.
 
You must log in or register to reply here.
Back
Top
Sign up to the MyBroadband newsletter
X