Telecommunications group Telkom will impair the carrying value of its legacy assets by R12-billion.

This followed an announcement by the group last week that Telkom’s board of directors was considering impairing the carrying value of these assets

Telkom indicated that the board’s decision was based on the considerable period of time that the group’s shares have been trading at a significantly lower value relative to its net asset value; the returns from some of the legacy assets being below commercial norms as a consequence of technology changes, competition from mobile operators and an evolving regulatory landscape; and the migration of services from legacy assets to assets that are based on new technologies which would rapidly escalate over the next few years and which would further reduce the returns from some of the legacy assets.

“We are committed to transforming Telkom'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. The upgrade of our network, which we will accelerate over the medium term, will be essential for improving our service delivery, efficiency and competitiveness, particularly given our customers' ever increasing demand for reliable and high-speed transmission of data,” CEO Sipho Maseko said in a statement on Tuesday.

The impairment charge is a noncash item and was not expected to impact on the group’s earnings before interest, tax, depreciation and amortisation.

However, the one-off charge would negatively impact on the group’s basic earnings a share from continuing operations for the 2013 financial year. Basic earnings a share were likely to be between R22.29 a share and R23.43 a share lower than that reported in the 2012 financial year.

Telkom, which will publish its results on June 14, further expected its headline earnings a share for the 2013 financial year to be between R2.32 and R2.44 a share lower than that of the year before.
 
The decline in headline earnings was largely as a result of the cost of voluntary severance packages of about R430-million and a provision of about R592-million for the Competition Tribunal fine and other legal matters.

In March, the group announced that it would, between March 15 and August 31, offer its management and bargaining unit staff the opportunity to apply for voluntary severance packages and voluntary early retirement packages.

The move was aimed at enabling Telkom to achieve its business objectives, as well as to ensure its sustainability and commercial viability by rebalancing its workforce in line with its strategic imperatives.

In April, the group agreed to pay a R449-million fine handed down by the Competition Commission in August 2012.

The Competition Tribunal had found Telkom guilty of charging excessive prices and engaging in uncompetitive behaviour between 1999 and 2004. The group appealed the fine but later withdrew its appeal.