Telkom on Tuesday warned shareholders that headline earnings per share (Heps) for the six months ended 30 September 2019 will fall by as much as 40%, sending the telecommunications operator’s shares tumbling on the JSE.

Heps and basic earnings per share are both expected to fall by between 30% and 40%, Telkom said in a statement to shareholders. Normalised Heps will fall by between 40% and 50%.

The company blamed a significant increase in net finance charges and fair-value movement of between 120% and 130% from R443-million reported in the same period a year ago — based on IFRS16 accounting standards. Excluding the impact of IFRS16, the net finance charges and fair-value movement increased by between 80% and 90%.

“The increase in the finance charges largely relates to increased borrowing in support of the investment in our mobile business; the cost of hedging increase as a result of the increase in the forward exchange contracts order book; and exchange and fair-value movements as a result of foreign exchange adjustments due to market conditions and the conversion of floating-rate debt to fixed-rate debt using interest rate swaps in line with our guideline,” it said.

“Overall in the period under review, this net movement represents a loss versus a reported gain in the corresponding period of the prior year.”

‘Immaterial’

The impact of IFRS16 on profit after tax was “immaterial” at between R50-million and R60-million, Telkom said.

The market reacted immediately to the trading update, sending the shares tumbling by more than 8% by 3.15pm in Johannesburg. In the past year, the share price has appreciated by more than 20%.