Telkom says job cuts will wipe 1.5bn from 2020 earnings

Telkom SA said on Friday its proposed job cuts of up to 20% of its staff will cost about R1.5 billion ($92.50 million), which will have a negative impact on its 2020 financial year (FY) earnings.

In January, Telkom told unions it could cut up to 3 000 of more than 15 000 staff including voluntary redundancies, as part of a two phase restructuring to deal with the decline of its fixed voice and fixed data services because of a migration to mobile data.

In the six-months to September 30, earnings before interest, tax, depreciation and amortisation (EBITDA) declined 4.3% to R5 billion on an IAS 17 accounting basis and headline earnings per share, the main profit measure in South Africa, fell 44%compared to a restated year-ago figure.

“The cash outflow related to the restructuring process is expected in the first half of the new financial year. Available cash resources will be used to fund the restructuring process,” Telkom said in a statement.

“This allows Telkom to remain within the current debt levels.”

Shares in Telkom plunged to a 6-1/2-year low after the announcement. It closed 16.93% weaker at R19.43 despite a rebound on the broader market.

Telkom said although the “multi-year transformation programme” has reduced legacy fixed voice revenue contribution to group revenue from 56% in FY 2013 to 22% in FY2019, it has since seen an accelerated decline in fixed voice revenue in the second half of the 2019 financial year relative to the first half.

It said the growth in new revenue streams has not been sufficient to offset the negative impact on group earnings before interest, tax, depreciation and amortization.

Like other African telecoms firms, Telkom, in which the government holds a stake of about 40%, is trying to keep pace with a surge in demand for the internet and data with growing smart phone usage.

Phase one of the job cuts, which is underway, will affect employees at Openserve and the Consumer divisions from January to April.

About 1 585 workers have applied for the voluntary severance packages (VSP) and voluntary early retirement packages (VERP), it said in February in court papers.