Telkom has suspended its dividend policy for the next three years as it seeks to build its cash position ahead of a planned auction of radio frequency spectrum in South Africa.
The partially privatised telecommunications group said in notes alongside its annual financial results, for the period to 31 March 2020, that it must participate in the planned auction, to be overseen by communications regulator Icasa, to “ensure the sustainability of the mobile business”. The auction is expected to take place before the end of the year.
“Telkom indicated in the first half of the year that it will review the dividend policy and, in considering the new dividend policy, Telkom will prioritise its capital investment programme, maintain a healthy balance sheet and consider its cash position within its capital allocation framework,” it said.
“The imminent spectrum auction will require a substantial amount of capital and it is of strategic importance for Telkom to participate to ensure the sustainability of the mobile business. Preserving cash and maintaining a flexible balance sheet have become of critical importance and urgent during the Covid-19 pandemic as the economy is under strain.
“Given all these factors that are expected to impact Telkom, the board found it prudent to suspend the dividend policy for the next three years from the 2021 financial year. Over the next three years, the capital will be redirected to the acquisition of spectrum and to complete the key capex programme to ensure the sustainability of our business.”
At the same time, Telkom has withdrawn previously issued financial guidance as a result of the uncertainty caused by the Covid-19 pandemic.
“The lockdown response to the Covid-19 pandemic is expected to impact the South African economy significantly, but quantifying the likely magnitude of this unprecedented crisis is challenging,” it said.
“Against the backdrop of both exceptional economic weakness and heightened uncertainty, it will be difficult to maintain our medium-term targets.”
Because of the uncertainty, Telkom said it will focus “relentlessly” on cost savings through its “sustainable cost management programme”, which includes a restructuring programme (retrenchments and voluntary severance/retirement packages) and other cost levers to protect the profitability of the business.
“The full benefits of the two-phase restructuring programme are expected to flow in over the next 12 to 24 months. Management will continue to exercise discipline in allocating capex, making sure that we invest in projects that give us reasonable returns.”
Because of the impact of Covid-19, Telkom said it will continuously assess its capital expenditure in line with revenue forecasts.
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