Retrenchment costs hit Telkom profit

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 06 Jun 2016
Telkom has successfully concluded a three-year turnaround strategy, says group CEO Sipho Maseko.
Telkom has successfully concluded a three-year turnaround strategy, says group CEO Sipho Maseko.

Telkom saw a 25% drop in full year profit after tax as the company spent almost R2.2billion on staff cuts.

The group raised its dividend by 10%, to 270c, for the year ended 31 March. This despite profit after tax dropping from R3.2 billion last year to R2.4 billion this financial year.

The telecoms operator says the profit hit was mainly as a result of voluntary early retirement and severance packages for 3 878 employees that cost it R2.19 billion. A further 437 employees were also affected by outsourcing, but as a result, Telkom's employee expenses reduced by 10% overall.

Group CEO Sipho Maseko says Telkom remains "mindful to retain talent and attract new talent, especially scarce and business-critical skills".

The telco says the biggest staff cuts came from its "semi-skilled category" where the workforce was reduced by almost 47% year-on-year. The junior management workforce decreased by 25%, middle management was reduced by almost 15%, and there was a 4% decrease in senior management.

The staff cuts were part of a three-year turnaround strategy, implemented in 2013, which Telkom says has now been successfully concluded.

"Having completed the turnaround phase of our strategy, we are embarking on the next phase, where our bias is to grow as we focus on implementing our new operating model," according to Maseko.

"We have executed well on the targets we set for ourselves three years ago, which included de-risking the mobile business, managing traditional revenue decline, focusing on operational and capital efficiencies, and improving customer experience."

Overall headline earnings per share (HEPS) fell 44% to 330c for the year, but on a normalised basis HEPS increased by 15.5% to 658c.

Operating revenue grew almost 14% to R37.3 billion with net revenue up 3.7%, boosted by the inclusion of Business Connexion (BCX) in the group consolidation and solid performance from the company's data services.

BCX generated revenue for seven months of R4.8 billion and earnings before interest and taxes of R213 million before eliminations, since the acquisition date. Telkom says the integration of BCX, which was acquired for R2.67 billion, is on track.

The company's performance, however, was partially offset by a 2% decline in voice and subscriptions revenue, as voice usage continued its downward trend and customers continued to substitute mobile services for fixed-lines.

Telkom says it responded to this trend by migrating customers from legacy services such as fixed-line voice to bundled, converged and next-generation data products where demand is strongest.

Mobile star

The telco says its mobile business delivered "a star performance" by reducing its earnings before interest, taxes, depreciation and amortisation loss from more than R2 billion three years ago to R43 million this year. Since the fourth quarter, the mobile business has been breaking even on a monthly basis.

Telkom now has over 2.7 million active mobile subscribers, an almost 24% increase from a year ago, with 1.9 million of those being prepaid customers. It also has an improved blended average revenue per user of R89, up 19% from last year. Mobile services and subscriptions revenue grew almost 40% to R2.5 billion year-on-year.

Capital outlay has also increased by 17% to R6 billion as the group invested in key priority areas which include fibre, LTE and mobile, IT systems, maintenance and rehabilitation, as well as service-on-demand.

"In the year ahead, an aggressive fibre rollout is our number one priority, while simultaneously deploying our other capital resources as we focus on revenue-generation and cost-efficiency to grow earnings," says Maseko.

In October, Telkom launched its redesigned wholesale and networks division, Openserve, as part of the group's ongoing efforts "to strengthen customer focus through a more flexible and agile operating model".

Maseko says the telecoms operator is now focusing on growing the business while maintaining a cost-efficiency focus.

"Investing in high-speed broadband, content and IP services, IT and value-added services is a key part of our strategy to transform and exploit the potential of our business going forward. These, we believe, will serve towards strengthening our core business."