Telkom SA today announced that, following a review by its board, it has taken a decision to impair the carrying value of its assets by R12 billion. After the impairment, the net asset value (“NAV”) per share is circa R34.
“We are committed to transforming Telkom’s financial performance” said Sipho Maseko, Group Chief Executive Officer at Telkom. “This will require bold and decisive action. Tough and urgent decisions will have to be made, particularly regarding costs and the decommissioning of unprofitable services. At the same time we will need to maximise potential profit opportunities. The upgrade of our network, which we will accelerate over the medium term, will be essential for improving our service delivery, efficiency and competitiveness, particularly given our customers’ ever increasing demand for reliable and high speed transmission of data. The decision to impair is another important step in this transformation journey. It allows us to draw a clear line between our historic position and our future enabling us to reset our base to become competitive and efficient. A financially strong business will empower Telkom to better serve South Africa through its products, services and unrivalled network infrastructure.”
In its deliberation the Board gave due consideration to inter alia the following factors:
- The considerable period of time that Telkom’s shares have been trading at a significantly lower value relative to its NAV.
- The returns from some of the legacy assets of the Group which are below commercial norms as a consequence of technology changes, competition from mobile operators and an evolving regulatory landscape.
- The migration of services from legacy assets to assets that are based on new technologies which will rapidly escalate over the next few years and further reduce the returns from some of the above noted legacy assets.
The impairment charge is a non-cash item and it will not impact the significant cash flow (EBITDA), which the Group generates from its operations. It is akin to an accelerated depreciation charge, which has no impact on Telkom’s strong cash position, low indebtedness and ability to fund its capital program from its own resources.
Basic earnings per share from continuing operations however has been adversely impacted by the once off non-cash impairment charge and is therefore expected to be 2,229 cents per share (cps) to 2,343 cps lower than the previous corresponding period for the year ended 31 March 2013.
The non-cash impairment charge is excluded from headline earnings per share from continuing operations, which is expected to be between 232cps and 244cps lower than the previous corresponding period. The decline in headline earnings is largely as a result of the cost of voluntary severance packages of approximately R430 million and a provision of approximately R592 million for the Competition Tribunal fine and other legal matters.
According to a statement released by the company, its Board is committed to “taking the necessary steps to address the major challenges that have impacted the financial performance of the Group in recent years …” and aims to strengthen customer relationships, improve operational efficiency and settle the outstanding Competition Commission claims.
Telkom will release its results for the year ended 31 March 2013 on 14 June 2013.