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11 June 2013

Telkom confirms R12 billion non-cash impairment of legacy network

Telkom today announced that following a review by its board, it has taken a decision to impair the carrying value of its assets by R12 billion. After the impairment, the net asset value (“NAV”) per share is circa R34.

"We are committed to transforming Telkom's financial performance” said Sipho Maseko, Group Chief Executive Officer at Telkom. “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.

The decision to impair is another important step in this transformation journey. It allows us to draw a clear line between our historic position and our future enabling us to reset our base to become competitive and efficient. A financially strong business will empower Telkom to better serve South Africa through its products, services and unrivalled network infrastructure."

In its deliberation the Board gave due consideration to inter alia the following factors:

  • The considerable period of time that Telkom’s shares have been trading at a significantly lower value relative to its NAV.
  • The returns from some of the legacy assets of the Group which are below commercial norms as a consequence of technology changes, competition from mobile operators and an evolving regulatory landscape.
  • The migration of services from legacy assets to assets that are based on new technologies which will rapidly escalate over the next few years and further reduce the returns from some of the above noted legacy assets.

The impairment charge is a non-cash item and it will not impact the significant cash flow (EBITDA), which the Group generates from its operations. It is akin to an accelerated depreciation charge, which has no impact on Telkom’s strong cash position, low indebtedness and ability to fund its capital program from its own resources. Basic earnings per share from continuing operations however has been adversely impacted by the once off non-cash impairment charge and is therefore expected to be 2,229 cents per share (cps) to 2,343 cps lower than the previous corresponding period for the year ended 31 March 2013.

The non-cash impairment charge is excluded from headline earnings per share from continuing operations, which is expected to be between 232cps and 244cps lower than the previous corresponding period. The decline in headline earnings is largely as a result of the cost of voluntary severance packages of approximately R430 million and a provision of approximately R592 million for the Competition Tribunal fine and other legal matters.

The Board is committed to taking the necessary steps to address the major challenges that have impacted the financial performance of the Group in recent years. To this end, the Board aims to strengthen customer relationships, improve operational efficiency and settle the outstanding Competition Commission claims. The Board is also focused on ensuring that the Group’s execution plans can deliver an increased return on invested capital. Shareholders will be informed of progress on these matters in due course.

Telkom will release its results for the year ended 31 March 2013 on 14 June 2013.

For further enquiries, please contact:

Pynee Chetty

Senior Specialist: Media Relations

Group Communication

Tel:+27 12 642 1716

Mobile: +27 81 389 7874

Email: chettpr2@telkom.co.za

OR

Leigh-Ann Francis

Specialist: Media Relations

Group Communication

Tel: +27 12 642 1728

Mobile: +27 81 391 4780

Email: francilm@telkom.co.za

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ABOUT TELKOM:

Telkom is a leading communications services provider in South Africa. We had consolidated operating revenue of R16.8 billion and normalised profit after tax of R1, 683 million for the period ended 30 September 2015. Total assets amounted to R41.9 billion and equity attributable to the owners of Telkom to R23.5 billion as of 30 September 2015. The group generated normalised free cash flow of R1.4 billion for the period ended 30 September 2015.

As of 30 September 2015, we had approximately 3.3 million telephone access lines in service and 1,030,441 ports connected via MSAN access. We offer business, residential and payphone customers a wide range of services and products, including:

  • fixed-line retail voice services using PSTN (Public Switched Telephone Network) lines, including ISDN (Integrated Services Digital Network) lines, and the sale of subscription based value-added voice services and calling plans;
  • fixed-line customer premises equipment rental and sales services both voice and data needs and these include PABX, Computers, Routers, Modems, Telephone handsets and other ancillary equipment;
  • interconnection services, including terminating and transiting traffic from South African mobile operators, as well as from international operators and transiting traffic from mobile to international destinations;
  • fixed-line data services, including domestic and international data transmission services, such as point-to-point leased lines, ADSL (Asymmetrical Digital Subscriber Line) services, packet-based services, managed data networking services and internet access and related information technology services;
  • Data Centre Operations includes e-commerce, application service provider, hosting, data storage, e-mail and security services;
  • W-CDMA (Wideband Code Division Multiple Access), a 3G next generation network, including fixed voice services, data services and nomadic voice services;
  • mobile communication services, including voice services, data services and handset sales through our mobile navbar-brand called Telkom Mobile;
  •  information and communication services including cloud services, infrastructure services, workspace services, global service integration management and hardware and network equipment sales locally, in seven African countries, the UK and Dubai through Business Connexion Group; and
  • other services including directory services, through Trudon (Pty) Ltd, wireless data services, through Swiftnet (Pty) Ltd.

Convergence is one of our key strategic initiatives in building a sustainable future for Telkom.  We will lead the provision of converged services in South Africa in support of our mission statement: Seamlessly connecting people to a better life.