JSE-listed Telkom has reported that it expects a double-digit decline in earnings during the six months ended September 30, mostly owing to a change in Telkom’s mobile postpaid and prepaid mix, which led to a deferment in revenue over 24 to 36 months, as well as an increasing cost base.

In a trading update to shareholders on Monday, the group said its reported headline earnings per share (HEPS) and reported basic earnings per share (BEPS) are expected to decrease by between 45% and 55% year-on-year.

Telkom expects to deliver BEPS of between 124.6c and 152.2c, a decline from the 276.8c reported in the prior interim period ended September 30, 2021, while expected HEPS will be between 128.5c and 157c, compared with 285.5c posted in the prior corresponding period last year.

The reduction in earnings, according to Telkom, was a result of the impact of revenue deferral resulting from the continued growth of its postpaid mobile sales, which reduced revenue recognised by R299-million.

The company also attributed the decline to a shift in mobile product mix, coupled with the upfront spend on handsets recorded immediately, while associated revenue is recognised over 24 to 36 months, which increased the cost of handsets, equipment, software and directories by more than 30% from R2.45-billion in the prior period.

“Further impacts include maintenance costs and service costs that also increased materially reflecting an increased mobile network for the period. Maintenance costs increased by more than 10% from R1.92-billion, while service fees increased by more than 20% from R1.61-billion, also impacted by higher backup energy costs owing to accelerated loadshedding during the period.”

“These costs were partially offset by savings in other areas as payments to other operators, employee costs, marketing, and other expenses were well managed,” Telkom said in the update.

Reduced tax for the period also contributed in offsetting the impact of higher costs, along with net finance charges and fair value movements, which declined by more than 15% from R659-million owing to a favourable foreign exchange hedging position during the period.

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

Telkom will publish its interim results for the six months ended September 30 on November 23.