Telkom has written down the value of its Nigerian acquisition, Multi-Links, prompting it to chalk up an impairment of R2,1bn in the six months to end-September.
Multi-Links, which continues to haemorrhage, increasingly looks like a millstone around Telkom’s neck.
In the six-month period, Multi-Links reported an Ebitda — earnings before interest, tax, depreciation & amortisation — loss of R164m.
Ebitda margin was a negative 20%, worse than the negative 19,8% a year ago and a significant decline over the six months to March, when margin was a negative 11,9%. However, Telkom says the monthly trend of the Ebitda margin is “on a positive trajectory, with the latest month’s Ebitda coming in at single-digit negative territory”.
“The balance sheet of Multi-Links is such that it is over-geared and unable to raise debt and creditor financing. Accordingly Multi-Links is being recapitalised with preference share capital in order to enable the company to repay existing debt and negotiate third-party financing.
Telkom says Multi-Link “remains our major challenge”, though it says there are signs of improvement. “Trading conditions continue to be tough as a result of local economic factors and pricing pressures, it says. “The relative strength of the rand against the naira has adversely affected our reported results.”
Earlier this year, Telkom hired former Cell C CEO Jeffrey Hedberg, widely regarded as a turnaround specialist, to take over at Multi-Links. However, Cell C parent Oger Telecom imposed a restraint of trade against him, meaning he hasn’t been able to take up the post.
Telkom says newly established distribution channels in Nigeria are still in a “formative stage of development”.
“In addition, in order to manage the high level of inventory we have continued to subsidise handsets through targeted promotions in selected geographic areas to increase capacity utilisation. In addition we have taken provisions against certain handset models with the intention of liquidating these items.”
Active voice subscribers increased 30% to 2m from 1,6m a year ago. However, average revenue per user — Arpu is a key industry measure — decreased to just US$7/month from $13 a year ago. “The medium-term target of $10 is still possible,” Telkom says.
Data subscribers increased to 18 924 from 2 644 and are generating an Arpu of $30.
“The period under review must be categorised as a period of reviewing lessons of the past, setting the base line and implementing plans for clear operational turnaround,” Telkom says.
In the six-month reporting period, Multi-Links reduced its staff complement by 5,7%, to 1 060, partly by outsourcing noncore activities. “Additional rationalisation activities are still in progress.”
Telkom says it will continue to “review all options with regard to consolidation and/or any other opportunities in Nigeria to accelerate the turnaround of Multi-Links”. — Duncan McLeod, TechCentral