Telkom Reports Largest Non-Mining South Africa Company Loss

Telkom SA SOC Ltd. said full-year losses widened more than fifty-fold to 11.6 billion rand ($1.17 billion) after it wrote down the value of its assets, making it the biggest loss by a South Africa-based non-mining company.

The net loss for the year through March compared with 216 million rand a year earlier, the Pretoria-based company said in a statement today. Earnings per share after one-time items fell 73 percent to 87 cents.

“Our results for 2013 have been largely impacted by the 12 billion rand impairment,” Chief Executive Officer Sipho Maseko said on a conference call. “The impairment was prompted by the considerable period of time that our shares have been trading at a much lower net asset value.”

The company, almost 40 percent owned by the South African government, is facing strike action amid talks with labor unions about wage increases. Revenue fell 1.8 percent to 33.1 billion rand as sales from the fixed-line voice service, its biggest contributor of revenue, decreased 4.7 percent amid competition from mobile and broadband companies.

Telkom shares rose as much as 3.9 percent and were trading 2.3 percent higher at 15.66 rand by 11:50 a.m. in Johannesburg, valuing the company at 8.1 billion rand.

Older Assets

Telkom’s net loss is the biggest of any companies traded on the Johannesburg Stock Exchange since AngloGold Ashanti Ltd. reported a 16.1 billion rand full-year loss in 2008, according to data compiled by Bloomberg.

The fixed-line operator wrote down the value of its assets to reflect the company’s lower share price, which has fallen 21 percent in the past 12 months, and implied net value, it said on June 11. Other considerations included the value of some of its older assets, which have declined as technology has advanced.

“We are in a comfortable position to support our ongoing capital expenditure program which is largely directed towards upgrading and renewing our network,” Maseko said on the call.

Telkom appointed former Vodacom Group Ltd. Chief Operating Officer Maseko as chief executive officer on March 28 as it seeks to boost growth and meet a target to help deliver broadband to all South African citizens by 2020. The government blocked the sale of a 20 percent stake to South Korea’s KT Corp. last year, saying it was a strategic asset.

Reviewing Costs

Telkom is reviewing its costs and may sell some of its property assets and reduce staff, particularly at management level, the CEO said. He declined to specify how many positions or the ideal size of the company after the job cuts.

The Communication Workers Union, the labor group with the most Telkom members, is considering strike action after failing to reach an agreement with Telkom on wage increases and job protection, spokesman Matankana Mothapo said in a mobile phone interview yesterday. The organization, which represents about 10,000 workers, is seeking an 11.5 percent salary increase compared with Telkom’s offer of a 6 percent rise. Telkom employs more than 20,000 people.

Employee expenses for the year increased by 14 percent because of salary increases and severance package payments, the company said.

Telkom shares have fallen 7.2 percent this year, compared with a 2.2 percent rise on the FTSE/JSE Africa All Share Index. Vodacom, South Africa’s largest wireless provider, has retreated 9.7 percent, while MTN Group Ltd., the continent’s biggest telecommunications company, is flat.

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