R1.5bn bill for Telkom’s job cuts

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 14 Mar 2020
Telkom group CEO Sipho Maseko.
Telkom group CEO Sipho Maseko.

Telkom’s job cuts will cost the company a whopping R1.5 billion.

The JSE-listed company yesterday issued a market update saying it has commenced phase one of a two-phase restructuring process.

It says the restructuring process follows the technological shift to fibre, LTE/LTE-A as new sources of revenue, notwithstanding lower margins.

In January, Telkom announced 3 000 jobs will be cut at the company. This is not the first time it will reduce staff numbers, as it has been offering voluntary retrenchment packages since 2015 in a bid to reduce its wage bill.

When it announced the job cuts this year, labour unions slammed Telkom’s move to retrench thousands of employees while paying over R100 million in remuneration to top executives.

In the previous financial year, trade union Solidarity said Telkom CEO Sipho Maseko alone took home R23 million.

In May last year, Telkom said it cut over 2 000 jobs in 2018 and reduced permanent staff by 12.5%.

Telkom’s total permanent group workforce at the end of March 2019 was 15 296, compared to 17 472 at the end of March 2018, which was a reduction of 2 176 jobs in one year.

Telkom's staff count in 2013 was 21 209 and by 2015 was 18 333, while it was down to 15 296 last year.

Giving an update to the market yesterday, the telecommunications company lamented about a rapid decline in its traditional high margin fixed voice business, “in line with global trends”.

It says although the multi-year transformation programme has reduced legacy fixed voice revenue contribution to group revenue from 56% in FY2013 to 22% in FY2019, the company has since seen an accelerated decline in fixed voice revenue in the second half of the financial year relative to the first half.

Nonetheless, Telkom says the mobile business sustained its growth trajectory into the second half of the year from a higher base and continued to drive the overall group revenue growth thus, offsetting the negative impact of the fixed voice revenue.

However, the growth in the new revenue streams has not been sufficient to offset the negative impact on group earnings before interest, taxes, depreciation, and amortisation (EBITDA), therefore group EBITDA continues to be under pressure, says the company.

Telkom has issued Section 189 Notices in terms of the Labour Relations Act (Section 189) to employees and started the process of consultation to restructure the business for future competitiveness, it notes.

“Telkom has also offered voluntary severance and voluntary early retirement packages (VSPs and VERPs) as an alternative to retrenchments. Telkom initiated the first phase of the process of the VSP, VERP and Section 189 Notices at a total cost of approximately R1.5 billion which will have a negative impact on the FY2020 earnings,” the statement says.

It adds that the cash outflow related to the restructuring process is expected in the first half of the new financial year.