Mounting losses at Multi-Links, Telkom’s failing Nigerian subsidiary, are set to drag down the fixed-line telecommunications operator’s profits in the financial year to 31 March 2010.

The group has also warned shareholders that operating costs at its main SA division are growing faster than earnings, and this is depressing the group’s margins. It doesn’t elaborate on the extent of the problem at the SA operation.

But it’s Nigeria where the really serious problems appear to lie. Multi-Links has become a financial millstone around the group’s neck. Telkom says economic and competitive pressures have weighed on its business in the West African country.

Operating losses at Multi-Links are expected to be even worse than the already poor numbers reported in the 2009 financial year.

Telkom has now been forced to impair goodwill in Multi-Links to the tune of R2,1bn. It will also impair Multi-Links assets worth R3,2bn as a result of the “continuing poor performance” at the company.

It will impair Multi-Links’s full net asset value, it says.

“The level of inventories and inventory commitments were abnormally high given the market circumstances in Nigeria and have been normalised,” Telkom says.

Telkom recently appointed former Cell C CEO Jeffrey Hedberg to try to turn around Multi-Links. Given the latest numbers, investors and analysts will be wondering if it’s worth saving.

Telkom says normalised headline earnings per share from continuing operations — excluding extraordinary items such as the profit realised from the sale of its stake in Vodacom — will be between 15% lower and 5% higher than a year ago.

Late on Friday afternoon, Telkom’s share price was trading 2% down. The group will report its annual results on 21 June. — Duncan McLeod, TechCentral