Mobile operator Telkom’s shares plunged nearly 10% after informed its shareholders yesterday that it expects its profits might drop massively due to its mobile postpaid versus prepaid mix changing.
In its trading statement for the six months ended September 30, 2022, Telkom said its headline earning per share and basic earnings per shares were expected to decrease by between 45% and 55% compared to the prior interim period ended September 30, 2021.
The shares slid to an intraday low of R32.47 after the update, later ending 6.04% lower at R33.73.
This was mainly due to Telkom’s mobile postpaid versus prepaid mix changing which had the impact of deferring revenue over 24 – 36 months, as well as the cost base increasing, it said.
According to the group, the resultant reduction in earnings was a combination of the impact of revenue deferral resulting from the continued growth of its post-paid mobile sales and reduced revenue recognised by R299 million.
“A shift in mobile product mix coupled with the upfront spend on handsets recorded immediately, while associated revenue is recognised over 24 to 36 months increased the cost of handsets, equipment, software, and directories by more than 30% from R2.5m in the prior period,” the group said.
Another reason for the reduction in earnings was the maintenance costs, and service costs also increased materially reflecting an increased mobile network for the period.
Maintenance costs increased by more than 10% from almost R2m, while service fees increased by more than 20% from R1.6m, also impacted by higher backup energy costs due to accelerated load shedding during the period, it said.
These costs were partially offset by savings in other areas as payments to other operators, employee costs, marketing, and other expenses were well managed.
“Net finance charges and fair value movements also partially offset the impact of increased costs and declined by more than 15% from R659m due to a favourable foreign exchange hedging position during the period, and reduced taxation for the period also contributed in offsetting the impact of higher cost,“ it said.
Notwithstanding the weaker performance in earnings and challenging trading environment, Telkom expects to sustain its topline revenue compared to the prior period.
Last month, telecos giant MTN walked away from talks to buy Telkom SA in a deal that would have created South Africa's largest mobile phone operator.
According to reports, MTN told Telkom that it ended the talks after it couldn't get assurances about exclusivity.
Mergence Equities head Peter Takaendesa said Telkom’s weak trading statement was the continuation of what was reported in the first quarter.
He said all the telecos were dealing with one major thing, cost pressure.
“It is really aggressive, you can see Vodacom today, the share price is down like 6%. It’s a common thing. You will see that their cost grew significantly over this time, higher than the inflation over the six months that ended in September.
“For Telkom, the combination of weaker revenue growth, and made worse by their cost pressure. impacted their operations,” he said.
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