FILE PHOTO: A shopper walks past a Telkom shop at a mall in Johannesburg
FILE PHOTO: A shopper walks past a Telkom shop at a mall in Johannesburg

Challenging time for Telkom

By Dineo Faku Time of article published Jun 17, 2020

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JOHANNESBURG - Telkom expects headline earnings to take a nosedive of up to 70percent in the year ended March as once-off costs relating to retrenchments and the Covid-19 fallout led to revenue plummeting during the period under review.

JSE-listed Telkom, a partially state-owned company, attributed the tumble in profits to the R1.18billion once-off costs relating to its restructuring programme and additional R626million impairment of trade receivables and contract assets due to the Covid-19 pandemic.

The company also told the market that basic headline earnings would fall by up to 80percent compared with a year earlier.

“The once-off items are not deductible for taxation purposes in the current year and have consequently resulted in a reduction in group profit before tax and a significant increase in the effective tax rate to 37.6percent,” Telkom reported.

It stressed that the pandemic would likely put further pressure on consumers with studies predicting that a number of customers were likely to default on their obligations.

As a result, it had taken a prudent approach in line with guidance from the SA Institute of Chartered Accountants by estimating an increase in customer default rates, and this had been incorporated in the calculation of the group’s expected credit losses, it added.

“The group recognised a total provision of R1.14bn, of which R626m is an additional impairment of trade receivables and contract assets due to the expected impact of Covid-19. The additional impairment is significantly impacted by the forward-looking assumptions used in calculating the expected credit losses to cater to the depressed economy,” Telkom said.

In January, the group announced that it planned to shed 3000 jobs as a part of a restructuring process as the decline in the fixed voice market in a tight economy took a toll on the business. Voluntary severance packages and voluntary early retirement packages were offered to employees.

The group said on Monday that excluding once-off costs relating to the restructuring and the additional provision relating to the impairment of trade receivables and accounts receivables resulted in headline earnings a share being expected to decrease by up to 35percent.

This was mainly attributable to lower earnings before interest, taxes, depreciation and amortisation (Ebitda) due to the impact of fixed voice on group Ebitda, the increase in finance charges and fair value movements.

“The challenge for the year was the impact of the fixed voice revenue decline on group Ebitda,” said the company, adding that the 22percent decline in fixed voice revenue was offset by the growth of more than 50percent in mobile service revenue in the 2020 financial year.

“From a cost perspective, management contained group operating expenses below inflation and optimised direct costs relating to the mobile business.

"However, the extent of the decline in fixed voice on group Ebitda was not offset, as it has a higher margin than the mobile business, resulting in normalised group Ebitda declining by 7 to 10percent in the prior year.”

In terms of the hike in finance charges and fair value movements on an IFRS16 basis, finance charges and fair value movement increased 90.4 percent compared with the prior year.

Telkom shares closed1.48 percent higher at R24.01 on the JSE on Monday.

BUSINESS REPORT 

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