Telkom has issued a trading statement for the six months ended 30 September 2022, warning shareholders to expect a decrease in earnings.

It says reported headline earnings per share (HEPS) and reported basic earnings per share (BEPS) are expected to decrease by between 45% and 55% compared to the prior interim period ended 30 September 2021.

This was mainly due to Telkom’s mobile postpaid vs prepaid mix changing which had the impact of deferring revenue over 24 to 36 months, as well as the cost base increasing. The resultant reduction in earnings is a combination of the following:

* The impact of revenue deferral resulting from the continued growth of our post-paid mobile sales reduced revenue recognised by R299-million;

* A shift in mobile product mix coupled with the upfront spend on handsets recorded immediately (while associated revenue is recognised over 24 to 36 months) increased the cost of handsets, equipment, software and directories by more than 30% from R2 453-million in the prior period;

* Maintenance costs and service costs also increased materially reflecting an increased mobile network for the period. Maintenance costs increased by more than 10% from R1 924-million, while service fees increased by more than 20% from R1 611-million, also impacted by higher backup energy costs due to accelerated loadshedding during the period;

* These costs were partially offset by savings in other areas as payments to other operators, employee costs, marketing, and other expenses were well managed;

* Net finance charges and fair value movements also partially offset the impact of increased costs and declined by more than 15% from R659-million due to a favourable foreign exchange hedging position during the period; and

* Reduced taxation for the period also contributed in offsetting the impact of higher costs.

Notwithstanding the weaker performance in earnings and challenging trading environment, Telkom expects to sustain its topline revenue compared to the prior period.