Telkom launched a frenzied scramble for cash on Tuesday, unveiling plans to slash as many as 1,770 jobs and to sell its device credit book for R1bn as rolling power cuts and heavy spending on the mobile network jacked up costs and eroded its profitability.
The cuts would amount to 15% of the company’s nearly 11,800 workforce across all divisions, including IT unit Business Connexion, its mobile division, and its property and fibre subsidiaries.
The retrenchment process “is intended to ensure the sustainability of the group”, Telkom said, adding that it would also sell its device loan book to an unspecified financial institution to raise R1bn.
The frantic plan to manage the cash crunch at SA’s third-largest mobile phone operator comes as its earnings reports in recent months painted a picture of a company that seems to have reached the ceiling in substantially winning market share in the mobile phone market.
It also underscores the impact of power outages on companies with limited cash buffers as they have to increasingly rely on expensive backup power to keep their operations running during blackouts.
Telkom said job cuts — which are likely to strike a nerve with its biggest shareholder, the government — are crucial in helping it to navigate its transformation from a fixed-line operator to a modern telecom operator.
In reaction, shares in Telkom — which has promised to reinstate dividend payouts in the coming fiscal year after a three-year suspension — shot up on Tuesday, rising as much as 8.2% before paring the gains to close 5.2% higher at R35.94.
The company, which warned that core profit fell almost 14% in the year to end-December, has also been hit by rising living costs, which have lowered demand for some products. At the same time, it has had to bear increased operating costs due to power cuts.
It shelled out an additional R150m in the quarter to mitigate the effect of load-shedding.
It expects the cost-saving programme, which has the backing of the board, to reflect on its balance sheet over the next six to 18 months.
Group revenue grew 2.3% to R11.031bn for the quarter, largely driven by growth in active subscribers in mobile and fibre, and increased data traffic, as well as higher handset and equipment sales to retail and enterprise customers.
The overall performance continues to be dragged down by the group’s migration from legacy and voice revenue businesses, which have been declining in recent years as people favour newer technologies such as fibre. However, these new technologies come with lower margins for Telkom, resulting in more pressure on earnings.
Group earnings before interest, tax, depreciation and amortisation were down 13.5% to R2.492bn, driven by the decline of legacy revenues, a restructuring of the mobile business to bring in more annuity revenue and higher operating costs. Mobile revenue increased 7% to R5.685bn, pushed by increased data consumption.
Update: February 14 2023
This story has new information throughout.
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