Shares in Telkom slumped in afternoon trade on Tuesday after the group warned that it expects earnings for the six months ended September 2019 to drop by as much as 40%.
The telco’s shares declined nearly 10% after it sent the note to shareholders.
Headline earnings per share are expected to be 30% – 40% lower than the prior year at between 201.6 and 172.8 cents per share. On a normalised basis, it said that it expects HEPS to be between 40% – 50% lower.
Basic earnings per share, Telkom said, is anticipated to be 30% – 40% worse off than in 2018, at between 193.2 and 165.6 cents per share.
The telecommunications firm attributed the losses to a significant increase in net finance charges and fair value movement of between 120% to 130% from R443 million reported in the prior year – impacted by the International Financial Reporting Standards (IFRS16) on finance charges.
Excluding the impact of IFRS16, net finance charges and fair value movement increased between 80% to 90% from R443 million reported in the prior year, Telkom said.
This it added, is attributable to:
- The increase in the finance charges largely relates to increased borrowing in support of the investment in its mobile business;
- Cost of hedging increase as a result of the increase in the Forward Exchange Contracts (FEC) order book; and
- Exchange and fair value movements as a result of foreign exchange adjustments due to market conditions and the conversion of floating rate debt to fixed rate debt using interest rate swaps in line with its guideline.
Overall in the period under review, this net movement represents a loss versus a reported gain in the corresponding period of the prior year, the group said.
The impact of IFRS16 on profit after tax was immaterial between R50 million to R60 million, it said.
Telkom is expected to publish its interim results on 12 November.