Subscribe

Telkom earnings hit by staff cuts

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 16 Nov 2015
Telkom CEO Sipho Maseko is pleased with an improved performance from the telco's mobile business, despite staff cuts hammering interim earnings.
Telkom CEO Sipho Maseko is pleased with an improved performance from the telco's mobile business, despite staff cuts hammering interim earnings.

If the R1.5 billion paid by Telkom for voluntary severance packages is excluded, the company's interim results show a rise in headline earnings per share (HEPS) of 13.9% to 280.6c.

However, when the hefty bill for the voluntary severance and retirement packages of over 3 100 staff are included, the figures look a lot different. HEPS are actually down 65% to 69.9c, while basic earnings per share fell 45% to 110.4c. The group also saw an almost 44% decline in profit after tax for the period to R606 million, largely due to the staff cut costs.

The telecoms operator decided to leave the severance bill, and the related tax impact of R446 million, out of the majority of its calculations for the six-month period to 30 September. Under this calculation, group net revenue rose 1.2% to R13.5 billion, while operating expenses, excluding depreciation, decreased 2.3% to R9 billion.

In normalised terms, the group recorded profit after tax of R1.7 billion and EBITDA of R5 billion, which led to the normalised HEPS rise of almost 14% driven by the benefit from lower employee expenses due to a lower headcount.

"Our efforts to right-size our workforce have, of course, not been conducive to building a strong brand internally," according to Telkom Group CEO Sipho Maseko.

He says while it is essential to realign the Telkom workforce and work more efficiently in order to successfully reduce its cost base, it is also essential the company retain talent and attract new talent, especially scarce and business-critical skills.

"The next phase in managing our human capital will be to ensure we have the correct culture, skills, processes and systems to enable Telkom to thrive.

"The challenges of intense competition, the soft economy and the evolutionary nature of the industry we find ourselves in will remain. As a result, the ongoing transformation of our business, from both a revenue and cost-efficiency perspective, remains our key focus," adds Maseko.

Cash outflows

"We have seen a decline in the group's cash balances to R623 million from R4.7 billion as at 31 March 2015. Our strong cash flow was impacted by the payment of the declared dividend and voluntary early retirement and severance costs."

The dividend was equal to a total of R1.3 billion, which helped push up the company's debt levels. Other significant cash outflows included the purchase of Business Connexion (BCX) for R2.7 billion and the repayment of a maturing bond worth R1.16 billion.

Despite the rising debt levels, Maseko believes Telkom remains "very lowly geared as a company". The telecoms operator also says it continued with its efforts to transform the company and stabilise revenue.

Mobile and data grow

Telkom's mobile business does seem to be making positive strides, and overall operating revenue increased by 5.5% on the back of continuing growth.

"We are pleased with the improved performance of our mobile business and our multi-year cost-efficiency programme, and will continue with these initiatives to bring about further improvements," says Maseko.

Mobile services and subscription revenue increased 40.5% for the interim period to R1.2 billion, while the number of active mobile subscribers grew 11.5% to over 2.2 million and generated blended average revenue per user (ARPU) of R89.05. The company also saw a 90.4% improvement in its mobile EBITDA loss.

Mobile data revenue increased 68.5% to R711 million, driven by an almost 50% increase in data users to 1.6 million. Mobile voice and subscriber revenue also increased almost 15% to R400 million.

"This can be attributed to a 58.6% increase in the number of postpaid subscribers and a 23.7% increase in blended ARPU."

Prepaid subscribers, however, dropped marginally by 1.2% and now sit at just over 1.57 million, while Telkom now has 680 933 postpaid customers.

Fixed-line failures

Telkom's fixed-line business remains a challenging area, with fixed-line voice usage revenue declining 14% to R3.1 billion "driven by competition, our migration of voice customers to bundled and annuity products and a 5.9% decline in the number of lines".

There was also a nearly 18% decline in interconnection revenue to R598 million as a result of interconnect traffic lost due to better pricing by competitors. Revenue from leased-lines dropped 25.8%, while fixed-line subscriptions revenue grew 7.5% to R4.2 billion "as a result of customers migrating to bundled offerings and average line rental tariff increases of around 13%".

Telkom says voice still remains a challenge, as the telco saw an accelerated decline in voice usage revenue as well as reduction in leased-lines. This was because of "pricing being significantly eroded by competitive offerings and a concerted effort by our competitors to gain market share by directly approaching our customer base with fibre offerings and aggressive pricing propositions as well as building their own infrastructure."

Outlook for the future

The company says it expects "the challenges of intense competition, the soft economy and the fixed and inefficient nature of our operating cost base" to remain challenges into the second half of the financial year. As a result, the ongoing transformation of Telkom's business from a revenue and cost perspective remains a key focus.

"We are very pleased with the improved performance of our mobile business. As previously indicated, we will continue to consider organic and inorganic initiatives to enhance and further improve the performance to our mobile business," according to Maseko.

He says Telkom is confident the mobile business will achieve breakeven on EBITDA by year-end.

Future plans include the acquisition of rival Cell C. Telkom confirmed its intention to buy all of the shares of Cell C on 9 November and says it is "currently performing due diligence on Cell C, and will update shareholders as the process progresses".

"We also expect our acquisition of BCX to be a key enabler of future revenue growth that will provide us with additional revenue opportunities."

The company's newly redesigned wholesale division, Openserve, was also recently launched to strengthen customer focus through a more flexible and agile operating model. Telkom hopes this will accelerate fibre-to-the-home rollout, with Openserve's goal being to give one million homes access to Telkom fibre by 2018.

"Although challenges remain, we are confident our turnaround strategy and other growth initiatives will deliver the results we have been working towards. We have a number of exciting ventures planned, which aim to make Telkom a very different business over the coming years," concluded Maseko.

Share