Telkom says restructuring costs to hit earnings – as Covid-19 brings future uncertainty

Telkom has advised that once-off costs relating to its restructuring programme are expected to have a major impact on its earnings.

The telecoms provider said in a trading update on Monday (15 June), for the year ended March 2020, that group headline earnings per share (HEPS) is expected to decrease by between 65% to 70%, while basic earnings per share (BEPS) is expected to decrease by between 75% to 80%.

The group cited once-off costs in the current year relating to the restructuring programme of R1.186 billion, and the additional impairment of trade receivables and contract assets due to Covid-19 of R626 million.

The once-off items are not deductible for taxation purposes in the current year, resulting in a reduction in profit before tax and a significant increase in the effective tax rate to 37.6%, Telkom said.

It said that the negative impact of Covid-19 on the local economy is expected to put further pressure on consumers with studies predicting that a number of customers are likely to default on their obligations as they fall due.

As a result, Telkom said it took a prudent approach in line with the SAICA guidance by estimating an increase in customer default rates for our customer base, and this has been incorporated in the calculation of the group’s expected credit losses.

Telkom pointed to a total provision of R1.140 billion, of which R626 million is an additional impairment of trade receivables and contract assets due to the expected impact of Covid-19.

Underlying performance – excluding the impact of once-off costs

Underlying performance excluding once off costs relating to voluntary severance packages (VSP) and voluntary early retirement packages (VERP) and the additional provision relating to the impairment of trade receivables and accounts receivables results in HEPS being expected to decrease by 30% to 35% and BEPS being expected to decrease by 35% to 40%.

This, Telkom said, is mainly attributable to lower earnings before interest, taxes, depreciation, and amortisation (EBITDA) due to the impact of fixed voice on group EBITDA, the increase in finance charges and fair value movements.

The challenge for the year was the impact of the fixed voice revenue decline on group EBITDA, it said.

The decline in fixed voice revenue of approximately 22% was offset by the growth of more than 50% in mobile service revenue in FY2020, Telkom said.

“During the year, we strengthened our balance sheet by repaying R1.2 billion and refinanced debt at a competitive market interest rate. We have extended the maturity profile of our debt to reduce the refinancing risk of the debt book,” the group said.

Telkom said it has also improved its liquidity position to R4.7 billion and undrawn committed facilities of R5.5 billion.

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