Telkom takes a big hit due to COVID-19

Telkom has released a trading statement which warned shareholders that its headline earnings per share (HEPS) is expected to decrease by between 65% to 70%.

Telkom will release its annual results for the year ended 31 March 2020 on 22 June 2020, which is expected to show a big decline in earnings.

“Basic earnings per share (BEPS) is expected to decrease by between 75% to 80% compared to the corresponding period in the prior year,” Telkom said.

Telkom said the decline in HEPS and BEPS is mainly attributable to once-off costs in the current year.

These once-off costs relate to the restructuring program of R1.186 billion and the additional impairment of trade receivables and contract assets due to COVID-19 of R626 million.

These once-off items are not tax-deductible in the current year and have consequently resulted in a reduction in profit before tax and a significant increase in the effective tax rate to 37.6%.

Telkom said the negative impact of COVID-19 on the SA economy is expected to put further pressure on consumers, which in turn will result in more customers defaulting on payments.

Notwithstanding the expected economic challenges, Telkom said it has not seen a deterioration in its debtors’ book performance from March to May 2020.

Declining fixed voice revenues
Telkom said the challenge for the year was the impact of the fixed voice revenue decline on earnings before interest, taxes, depreciation, and amortization (EBITDA).

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

“From a cost perspective, management contained operating expenses below inflation and optimised direct costs relating to mobile business,” Telkom said.

However, the extent of the decline in fixed voice on EBITDA was not offset as it has a higher margin than the mobile business.

This resulted in EBITDA declining by 7% to 10% from the R11.309 billion reported in the prior year.