Telecommunications group Telkom expects its headline earnings a share to fall by as much as 40% in the six months to the end of September, mainly due to losses from its mobile business, which it launched under the 8ta brand last year.

The mobile business incurred a loss of about R900-million in the five months between April and the end of August, which the JSE-listed company said was in line with expectations.

Telkom group CEO Nombulelo (Pinky) Moholi reported in June that 8ta would break even in 2014, and that the business would be cash-flow positive in the 2015 financial year.

The overall mobile subscriber base has grown 86.3% to 882 235 revenue-generating customers from the start of the 2012 financial year in April.

Post-paid customers grew by 490%, while prepaid customers grew by 56%. “Growth in prepaid customers was lower-than-expected because of suboptimal distribution channels, which have now been expanded,” Telkom said in a trading and operational update on Thursday.

The group reported that its basic earnings a share from continuing operations would be 70% lower than the comparative period, if the R450-million impairment of corporate data provider iWayAfrica were included.

“iWayAfrica’s performance was impacted by higher customer churn and the weakening of the exchange rate.”

Telkom said that the sale of its Multi-Links business in Nigeria would reflect a net loss of R650-million, if concluded in the period under review. However, the transaction was unlikely to close before September 30, and the impact has therefore not been included in the basic and headline earnings estimates.

The company sold Multi-Links to Hip Oils Topco, an affiliate of Helios Towers in Nigeria for $10-million.

Meanwhile, Telkom warned of a challenging time ahead as a result of low economic growth and the uncertainty created by global economic crises and volatile markets.

“Competition, pricing pressures and regulatory interventions continue to have negative impact on revenues. Revenues are expected to be under pressure for the foreseeable future,” it said.

Trading revenue has declined compared with the comparative period last year, as a result of continuing substitution of fixed-line traffic in favour of mobile, as well as the impact of fixed and mobile termination rate reductions.

Telkom said it would intensify initiatives, such as attractive calling plans, data and voice bundles and fixed and mobile convergence solutions, in a bid to moderate the decline in revenue.

The group’s local fixed-line traffic revenues declined by about 14% in the first half of its financial year, largely as a result of a decline in volume. Long distance traffic fell by 9%.

Data revenues fell by 3% year-on-year, which Telkom said was as a result of the prior period benefiting by R334-million from the FIFA World Cup.

Shares in Telkom fell by 5% to R31.36 a share after it published the profit warning. The company would release its interim results on November 22.