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Telkom confirms impairment

Telkom Impairment

Telkom Impairment

Pretoria – Telkom on Tuesday announced its decision to impair the carrying value of its assets by R12 billion with the net asset value being reduced around R34 a share.

Last week, the company said its board was considering the impairment, which is a reduction of a company’s stated capital. It is typically lessened due to poorly estimated losses or gains.

Group Chief Executive Officer Sipho Maseko expressed a commitment to transform the company’s financial performance.

“This will require bold and decisive action. Tough and urgent decisions will have to be made, particularly regarding costs and the decommissioning of unprofitable services. At the same time we will need to maximise potential profit opportunities,” he said.

The company will upgrade and accelerate its network over the medium term. This will be essential for improving service delivery, efficiency and competitiveness, he added.

The decision to impair is an important step in the transformation journey of the company. “It allows us to draw a clear line between our historic position and our future enabling us to reset our base to become competitive and efficient,” he added.

The considerable period of time that Telkom’s shares have been trading at a significantly lower value relative to its net asset value as well as 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 are some of the matters deliberated upon by the Telkom board.

“The impairment charge is a non-cash item and it will not impact the significant cash flow, which the Group generates from its operations. It is akin to an accelerated depreciation charge, which has no impact on Telkom’s strong cash position, low indebtedness and ability to fund its capital program from its own resources,” said the company.

The non-cash impairment charge is excluded from headline earnings per share from continuing operations, which is expected to be between R2.32 cents per share and R2.44 cents per share lower than the 2012 financial year.

“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 fine and other legal matters.

“The Board is committed to taking the necessary steps to address the major challenges that have impacted the financial performance of the Group in recent years. The Board aims to strengthen customer relationships, improve operational efficiency and settle the outstanding Competition Commission claims,” it said.

It was announced in April that Telkom will have to pay a penalty of R449 million, which had been imposed on the company by the Competition Tribunal last year for abusing its dominance in the telecommunications market between 1999 and 2004. This is as a result of the Competition Commission and Telkom SA Limited reaching an agreement.

Telkom — which is a leading communications services provider in South Africa and on the African continent — will release its results for the year ended 31 March 2013 on Friday. The entity reports to the Department of Communications.  – 

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