Telkom earnings to take a smack

Johannesburg - Telecommunications group Telkom SA (TKG) said on Friday that it expects headline earnings per share (HEPS) to be 130%-140% lower for the six months ended September 30, while normalised HEPS are expected to be 45%-55% lower.

Telkom said its HEPS includes the secondary taxation on companies (STC) on the special dividend, the compensation expense and the fair value loss on Vodacom shares.

"The South African business continued to experience margin pressure absorbing higher than inflation increases in operating costs mainly as a result of higher payments to local and international operators, salary increases as a result of the agreement reached with the unions, higher depreciation and increased provisioning for inventory write-offs," it said.

Telkom said its Nigerian operations reported EBITDA losses at similar levels to those of the corresponding period in the previous year.

"Trading conditions in Nigeria remained tough as a result of local economic factors, pricing pressures and the short-term strategy to reduce inventories and acquire subscribers by subsidising certain handsets," it said.

"The newly appointed distribution agents are still at an early stage of establishing new distribution channels and average revenues per subscriber remained low in an intensely competitive market. The weaker Nigerian economy has also placed increased pressure on consumer spending," the group added.

Telkom pointed to the successfully conclusion of the sale and unbundling of its 50% stake in Vodacom during the period under review. The group reported a profit on the sale of its 15% share in Vodacom, of approximately R18.54m, while profit on the unbundling of its 35% share in Vodacom, saw approximately R25.69m.

It also reported a profit on the disposal of Telkom Media, of approximately R68m.

Additional unusual items impacted earnings for the six-month period:

• Capital gains tax on the sale and unbundling of our Vodacom shares, of approximately R1.353m;
• STC on the special dividend relating to the sale of Vodacom, of approximately R977m;
• Reversal of the deferred tax asset relating to capital gains tax on the Vodacom sale, of approximately R421m;
• Compensation expense recognised in terms of IFRS2 relating to the amendment of the Telkom Conditional Share Plan, of approximately R946m;
• Fair value loss on the mark to market valuation of Vodacom shares held at September 30 2009, of approximately R166m; and
• Impairment of goodwill in Multi-Links Nigeria, of approximately R2.15m.

Telkom said that the main differences between basic earnings and headline earnings were the profit on the sale and gain on unbundling of its 50% share in Vodacom and the related capital gains tax and impairments and write-offs relating to property, plant and equipment and intangible assets.

The group said it expected to release its results on November 23.

- I-Net Bridge