Telkom to take a massive hit as a result of load shedding and a shifting customer base

Telkom has warned shareholders that it expects its headline earnings for the first half of the year to take a massive hit as a result of load shedding and a shifting customer base.

The group said in a trading statement issued ahead of its interim results for the six months ended 30 September 2022 that it expects headline earnings to fall by 45% to 55% compared to the same period last year.

This decline is primarily due to a shift in Telkom’s mobile postpaid vs. prepaid mix, which had the effect of deferring revenue over 24 – 36 months, as well as an increase in the cost base, according to the company.

Telkom stated that revenue deferral as a result of continued growth in post-paid mobile sales reduced revenue recognised by R299 million.

Meanwhile, a change in its mobile product mix, combined with the upfront spend on handsets, increased the cost of handsets, equipment, software, and directories by more than % from R2 453 million in the previous period.

“Maintenance costs and service costs also increased materially, reflecting an increased mobile network for the period. Maintenance costs increased by more than 10% from R1 924 million, while service fees increased by more than 20% from R1 611 million, also impacted by higher backup energy costs due to accelerated load shedding during the period,” it said.

These costs were offset in part by savings in other areas, such as payments to other operators, employee costs, marketing, and other well-managed expenses.

“Net finance charges and fair value movements also partially offset the impact of increased costs and declined by more than 15% from R659 million due to a favourable foreign exchange hedging position during the period,” It said, adding that lower taxation for the period also helped to offset the impact of higher costs.

“Notwithstanding the weaker performance in earnings and challenging trading environment, Telkom expects to sustain its topline revenue compared to the prior period,” it said.

It anticipates a drop in basic earnings of between 152 and 125 cents per share and a drop in headline earnings of between 157 and 129 cents per share.

The group’s interim results for the six months ended September 30, 2022, will be released on November 23, 2022.