Telkom’s board of directors is considering impairing the carrying value of the group’s legacy network.
For considerable time, the price at which Telkom shares have been trading has been significantly lower than their net asset value (NAV). At the last reporting date, 30 September 2012, the NAV per share was R57. As cited by IAS 36, when the carrying value of an entity’s net assets is more than their market capitalisation, it is an indication that the carrying value of the assets may be impaired.
Telkom, in line with other fixed line incumbents globally, has for more than a decade, faced technology changes, competition from mobile operators and an evolving regulatory landscape which have contributed to lower investment returns from its legacy network assets.
The group continues to invest significant capital into upgrading its fixed and mobile network to meet the increasing needs of customers, particularly regarding data transmission.
The migration of services from legacy assets to superior Internet Protocol-compliant assets will rapidly escalate over the next few years, ensuring services remain differentiated from competitors and competitively priced. This transition will also enable the Group to improve operational efficiency, as it is a major benefit of new technology.
The migration of services from legacy assets to superior Internet Protocol-compliant assets will rapidly escalate over the next few years, ensuring services remain differentiated from competitors and competitively priced. This transition will also enable the Group to improve operational efficiency, as it is a major benefit of new technology.
“A decision to impair will draw a clear line between the historic position of Telkom and our future as network provider of high speed, quality broadband,” says Sipho Maseko, group CEO at Telkom.
“In effect, such a decision will allow us to ‘reset our base’ and be competitive. It will also send a clear message to our stakeholders that we are prepared to take bold action to ensure that Telkom is positioned to succeed. It is important for us to focus on sustainable earnings going forward and the market segments where Telkom has a competitive advantage.”
“In effect, such a decision will allow us to ‘reset our base’ and be competitive. It will also send a clear message to our stakeholders that we are prepared to take bold action to ensure that Telkom is positioned to succeed. It is important for us to focus on sustainable earnings going forward and the market segments where Telkom has a competitive advantage.”
A non-cash impairment charge, that may follow the review by the board, will not impact on the significant cash flow which the group generates from its operations. A non-cash impairment charge 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 programme from its own resources.
The quantum of the non-cash impairment charge cannot be confirmed at this stage. Once the board has made a decision on a possible non-cash impairment the impact on earnings will be communicated to the market.
Telkom will release its results for the year ended 31 March 2013 on 14 June 2013.