Siseko Njobeni
16 November 2009
Johannesburg — TELKOM , Africa's largest fixed- line phone company, on Friday said it expected its headline earnings per share for the six months to September to fall as much as 140%.
The trading update did not impress the market and Telkom's share price fell sharply soon after it made the announcement, and it lost 3,55% on Friday to close at R40,75.
Telkom said it expected its headline earnings per share to decrease 130%-140% compared to the corresponding period last year, while normalised headline earnings per share were expected to fall by between 45% and 55%.
"The main differences between basic earnings and headline earnings are the profit on the sale and gain on unbundling of our 50% share in Vodacom and the related capital gains tax and impairments and write-offs relating to property, plant and equipment and intangible assets."
The headline earnings per share include secondary taxation on companies on a special dividend relating to the sale of Vodacom.
The South African business had to absorb higher than expected increases in operating costs because of higher payments to local and international operators, salary increases after an agreement with trade unions and inventory write-offs .
Multi-Link, the Telkom-owned private telecommunications operator, is also expected to deliver poor results.
"Trading conditions in Nigeria remained tough as a result of local economic factors, pricing pressures and the short-term strategy to reduce inventories and acquire subscribers by subsidising certain handsets," Telkom said. The weaker Nigerian economy had increased pressure on consumer spending, it said.
Sibonginkosi Nyanga of Imara SP Reid said the sale of Vodacom had cast doubt on Telkom's future performance as it continued to be viewed as a fixed operator and needed to reposition itself urgently.
"Investors need a clear picture of how it will grow as a business after the sale of Vodacom. Given that fixed-line services are losing ground to new technologies, Telkom needs to work quickly to turn the Vodacom sale into something positive.
"Telkom's failure to deliver its transformational strategy and achieve substantial efficiency savings, coupled with a continued performance decline in Multi- Links could put a further pressure on earnings," Nyanga said.
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