Telkom has announced that its board has decided to impair the carrying value of R12 billion worth of assets, resulting in a massive drop in basic earnings per share.
The telco said last week (5 June 2013), that it would consider writing off the carrying value of its legacy network through a non-cash impairment charge.
“For a considerable time the price at which Telkom shares have been trading at has been significantly lower than the net asset value (“NAV”) of a Telkom share,” it said at the time.
On 30 September 2012, the NAV per share was R57, Telkom said, noting further that 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.
After the impairment charge of R12 billion, Telkom noted that the net asset value per Telkom share is R34.
The group said that the non-cash impairment charge will not significantly impact that company’s operational cash-flow (Ebitda), however basic earnings per share from continuing operations however has been adversely impacted.
Telkom expects basic earnings per share to be R22.29 to R23.43 lower for the year ended March 2013.
The non-cash impairment charge is excluded from headline earnings per share from continuing operations, which is expected to be between 232 cents per share and 244 cents per share lower than 310.8 cents in 2012.
“The decline in headline earnings is largely as a result of the cost of voluntary severance packages of approximately R430 million and a provision of approximately R592 million for the Competition Tribunal fines and other legal matters,” Telkom said.
In its deliberation Telkom said that its board has given consideration to the following factors:
- The considerable period of time that Telkom’s shares have been trading at a significantly lower value relative to its NAV.
- The returns from some of the legacy assets of the group which are below commercial norms as a consequence of technology changes, competition from mobile operators and an evolving regulatory landscape.
- The migration of services from legacy assets to assets that are based on new technologies which will rapidly escalate over the next few years and further reduce the returns from some of the above noted legacy assets.