Problems in its African operations outside SA, increasing competition and regulatory pressures have conspired to knock Telkom’s earnings in the six months to the end of September 2011, the telecommunications group has warned shareholders.

Basic earnings per share from continuing operations for the period are expected to be at least 70% lower than the comparative period in the prior year, it says in a statement on the JSE’s Sens news service on Thursday.

“The decrease is mainly attributable to the losses incurred by the mobile business and [an] impairment of iWayAfrica of approximately R450m.”

Higher customer churn and the weakening of exchange rates hit the performance at iWayAfrica, it says. Excluding the impairment of iWayAfrica, basic earnings are expected to be at least 40% lower.

It expects headline earnings per share to be at least 40% lower, mainly due to losses incurred by the mobile business.

Telkom says the operating environment “remains challenging as a result of low economic growth and uncertainty created by the global economic crisis and volatile markets”.

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

In the six months, trading revenue has declined as a result of continuing substitution of fixed-line traffic in favour of mobile.

“Efforts to moderate the decline in revenues by introducing attractive calling plans, data and voice bundles and fixed and mobile convergence solutions are having some impact and these initiatives will be intensified over the medium term,” it says.

Local traffic revenues have declined by about 14%, mainly as a result of lower calling volumes. Long-distance traffic revenue has declined by about 9%. Fixed-to-mobile traffic revenue has grown by about 2%. International traffic revenue has decreased by about 21%.

However, subscription revenue has increased as a result of higher effective pricing and an increase in customer premises device rentals.

Data revenues have fallen by about 6%, mainly as a result of the prior period benefiting by R334 million from the soccer World Cup.

The results for the six months will also be restated to reflect the entire investment in the Multi-Links business as an asset held for sale. An operating loss of about R 200m by the end of August will be disclosed as earnings from discontinued operations.

Multi-Links has been sold to an affiliate of Helios Towers but remains subject to the consent of the Security Exchange Commission of Nigeria and the “absence of an injunction, restraining order or decree of any Nigerian governmental entity prohibiting the transaction”.

Telkom says the sale of Multi-Links will result in the recognition of a net loss of about R650m, if the deal is concluded. Because the transaction will be concluded after 30 September, the impact has not been included in basic and headline earnings in the six-month period.

As part of the agreement of sale, Telkom has guaranteed to accept liability for certain litigation claims against Multi-Links if these claims exceed $10m. It says it is unlikely that claims will exceed that amount. — Staff reporter, TechCentral