Telkom is likely to report earnings down substantially for the six months anded 30 September, compared to the same period last year.
The telco has issued a statement saying it is expecting basic earnings per share (BEPS) from continuing operations, which excludes the profit on sale and gain on unbundling of Vodacom and all expenses related to the transaction, are expected to decrease by between 130% and 140%. BEPS including the profit on sale and gain on unbundling of Vodacom and all expenses related to the transaction are expected to increase by 1,565% to 1,575%.
Normalised headline earnings per share from continuing operations for the period, which excludes all the unusual items, are expected to decrease by about 45% to 55%. Headline earnings per share, which includes the STC on the special dividend, the compensation expense and the fair value loss on Vodacom shares, are expected to decrease by between 130% and 140% from the corresponding period in the prior year.
The statement says 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.
The 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.
The newly appointed distribution agents in Nigeria 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.
Telkom concluded the sale and unbundling of its 50% stake in Vodacom during the period under review.
The telco says the following unusual items impacted earnings for the six month period:
* Profit on the sale of its 15% share in Vodacom, of approximately R18,535-billion;
* Profit on the unbundling of its 35% share in Vodacom, of approximately R25,688-billion;
* Capital gains tax on the sale and unbundling of our Vodacom shares, of approximately R1,353-billion;
* Secondary taxation on companies on the special dividend relating to the sale of Vodacom, of approximately R977-million;
* Reversal of the deferred tax asset relating to capital gains tax on the Vodacom sale, of approximately R421-million;
* Compensation expense recognised in terms of IFRS2 relating to the amendment of the Telkom Conditional Share Plan, of approximately R946-million;
* Fair value loss on the mark to market valuation of Vodacom shares held at 30 September 2009, of approximately R166-million;
* Impairment of goodwill in Multi-Links Nigeria, of approximately R2,148-billion; and
* Profit on disposal of Telkom Media, of approximately R68-million.