Wrap Text
Trading statement
Telkom SA SOC Limited
Registration number 1991/005476/30)
JSE share code: TKG
JSE bond code: BITEL
ISIN: ZAE000044897
("Telkom" or “the Group”)
Trading Statement
Shareholders are advised that Telkom is currently finalising its annual results for the year ended 31 March
2020 (“FY2020” or “the current year”), which will be released on the Stock Exchange News Service
(“SENS”) of the JSE Limited (“JSE”) on 22 June 2020.
In accordance with paragraph 3.4(b) of the Listings Requirements of the JSE Limited ("JSE"), shareholders
are advised that reported group headline earnings per share (HEPS) is expected to decrease by between
65% to 70%, while reported group basic earnings per share (BEPS) is expected to decrease by between
75% to 80% compared to the corresponding period in the prior year. This is mainly attributable to once-off
costs in the current year, relating to the restructuring program of R1 186 million and the additional
impairment of trade receivables and contract assets due to COVID-19 of R626 million. The once-off items
are not deductible for taxation purposes in the current year and have consequently resulted in a reduction
in Group profit before tax and a significant increase in the effective tax rate to 37.6%.
COVID-19 impacted the last two weeks of FY2020. In line with the JSE and SAICA guidance, COVID-19
has been concluded as an adjusting post balance sheet event for companies with a year end of 31 March
2020. International Financial Reporting Standard (IFRS 9) requires that the impairment of trade
receivables and contract assets be based on expected credit loss principles. This requires that we take a
forward-looking view of macro-economic impact on debtors’ behaviour.
The negative impact of COVID-19 on the SA economy is expected to put further pressure on consumers
with studies predicting that a number of customers are likely to default on their obligations as they fall due.
As a result, Telkom took a prudent approach in line with the SAICA guidance by estimating an increase in
customer default rates for our customer base, and this has been incorporated in the calculation of the
Group’s expected credit losses. As a result, the Group recognised a total provision of R1 140 million, of
which R626 million is an additional impairment of trade receivables and contract assets due to the
expected impact of COVID-19. The additional impairment is significantly impacted by the forward-looking
assumptions used in calculating the expected credit losses to cater for the depressed economy.
Notwithstanding the expected economic challenges, the Group has not seen a deterioration in its debtors’
book performance from March 2020 to May 2020.
Underlying performance – excluding the impact of once-off costs
Underlying performance excluding once off costs relating to voluntary severance packages (“VSP”) and
voluntary early retirement packages (“VERP”) and the additional provision relating to the impairment of
trade receivables and accounts receivables results in HEPS being expected to decrease by 30% to 35%
and BEPS being expected to decrease by 35% to 40% compared to the year ended 31 March 2019 (“the
prior year”). This is mainly attributable to lower EBITDA due to the impact of fixed voice on Group EBITDA,
the increase in finance charges and fair value movements.
• Lower normalised EBITDA due to the impact of fixed voice on Group EBITDA
The challenge for the year was the impact of the fixed voice revenue decline on Group EBITDA. The
decline in fixed voice revenue of approximately 22% was offset by the growth of more than 50% in mobile
service revenue in FY2020. From a cost perspective, management contained Group operating expenses
below inflation and optimised direct costs relating to mobile business. However, the extent of the decline
in fixed voice on Group EBITDA was not offset as it has a higher margin than the mobile business, resulting
in normalised Group EBITDA (on a pro forma IAS17 basis and excluding the once off adjustments)
declining by 7-10% from R11 309 million reported in the prior year.
• Increase in finance charges and fair value movements
On an IFRS16 basis, finance charges and fair value movement increased 90.4% compared to the prior
year. On a pro forma IAS 17 basis, finance charges and fair value movement increased by 51.5% from
R947 million reported in the prior year relating to:
• finance charges, primarily due to an increase in net borrowings for the year of R1.8 billion and the
interest cost related to the outstanding tax liability. However, these costs were mitigated by the
repayment of debt of R1.2 billion from cash reserves; and
• forex and fair value movements, largely due to increased cost of hedging and the impact of the
reduction in the repo rate on the Interest Rate Swaps (IRS) book. The fair value movement on the
IRS book was contained by a reduction in the ratio of fixed debt to floating rate debt.
Notwithstanding the increase in net borrowings, maintaining a flexible balance sheet remains critical.
During the year, we strengthened our balance sheet by repaying R1.2 billion and refinanced debt at a
competitive market interest rate. We have extended the maturity profile of our debt to reduce the
refinancing risk of the debt book.
Telkom has also improved its liquidity position to R4.7 billion and undrawn committed facilities of R5.5
billion. On an underlying basis, our gearing improved compared to the first half of the year. Excluding
financial leases and once-off items mentioned above, our net debt to EBITDA is 0.7x FY2020. On an IFRS
16 basis, net debt to EBITDA is 1.3x. The improved gearing was as a result of the liquidation of the short-
term investment of R1.5 billion and a significant improvement of R1.2 billion in our free cash flow compared
to the prior year.
The following table, on an IFRS 16 basis, includes reported and normalised earnings (which exclude the
VSP and VERP of R1 186 million and the related tax impact of R332 million, as well as the additional
impairment of trade receivables and contract assets of R626 million and related tax impact of R175 million.
The prior year normalised earnings include R728 million and the related tax impact of R215 million relating
to VSP/VERP. Normalised earnings prepared on a pro-forma basis, are the responsibility of the directors,
have been prepared for illustrative purposes only and due to their nature, may not fairly represent Telkom’s
earnings.
31 March 2019 31 March 2020
As previously
reported
(cents)
Expected Movement Expected
ranges (cents) earnings
BEPS
Reported 561.9 75-80% lower 421 to 449 cps lower 140.9 to 112.9 cps
Normalised 665.1 35-40% lower 233 to 266 cps lower 432.1 to 399.1 cps
HEPS
Reported 619.2 65-70% lower 402 to 433 cps lower 186.2 to 217.2 cps
Normalised 722.4 30-35% lower 217 to 253 cps lower 505.4 to 469.4 cps
The difference between BEPS and HEPS recorded in FY2020 is the impairment of assets and profit or
loss on sale of assets.
The above information has not been reviewed nor reported on by Telkom’s independent external auditors.
The Group's results for the year ended 31 March 2020 will be released on SENS on 22 June 2020 and the
annual results material will be available for all stakeholders on the Group's website, www.telkom.co.za/ir.
A live presentation will be webcast (a link will be available on Group’s website) and a live broadcast on
BDTV (Channel 412 on DSTV) at 10 am.
Centurion
15 June 2020
Sponsor
Nedbank CIB
Date: 15-06-2020 03:16:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
