Telkom's expectation of increased earnings at the end of the financial year has raised the ire of unions, which cannot understand why it needs to cut staff when its bottom line has improved dramatically.
Telkom expects to cut as many as 650 staff in a management retrenchment process, because of its financial situation and a need to flatten its management structure. The organisation has said the process is "imperative for the survival of the business into the future and its necessary success".
The telco noted it has underperformed for several years as its share of market in fixed voice and data continues to decline and fixed-to-mobile substitution has intensified competition. "Telkom intends to build the right organisation for the future by improving the business performance and unlocking efficiencies. The company will continue to explore other avenues that can assist with cost reduction in all areas of the business."
Better bottom line
Yesterday, the group showed shareholders that its bottom line is improving as it benefits from once-off improvements and measures, as well as costs that have not reoccurred. Its trading update indicated basic earnings per share from continuing operations would gain between 2 972c and 3 428c, reversing last year's per share loss.
Headline earnings per share - seen as a key indicator of performance - are set to gain between 772c and 789c, compared with last year's 86.2c. The group, which is set to release its results on 13 June, says these gains are because several once-off items did not reoccur this year, and it gained R2.2 billion from cutting off post-retirement medical aids.
Telkom's statement also showed the gains were thanks to lower mobile termination rates, the benefits of cost-saving initiatives, and less depreciation, after it wrote down legacy assets by R12 billion last year.
To the streets
Although shareholders are happy about the news, driving Telkom stock 6% higher yesterday, it has left a foul taste in the mouth of its two biggest unions. Communication Workers Union spokesman Clyde Marvin says Telkom is "frustrating" it, because it is cutting staff when its books are "good". "Where does the truth come out?"
Marvin says the union will meet Telkom "head on" and prepare its members to "go to the streets. It doesn't add up."
The South African Communications Union echoes these sentiments in a letter sent to Telkom by general secretary Karriem Abrahams.
Abrahams says Telkom is "making more of this cost-cutting crisis than there probably is in reality". The letter adds "it is patently clear the company is not in financial distress and, therefore, cannot put forward the declining revenue as a substantive reason for forceful retrenchments". President Michael Hare says the union is prepared to interdict Telkom to stop retrenchments if it does not follow due process.
Solidarity spokesman Marius Croucamp says Telkom's improved results make it difficult for the people on the ground to understand why retrenchments are necessary. He notes, however, it appears the retrenchments have more to do with reworking Telkom's structure than its financial situation. "Workers then become the victim of previous managerial decisions."
Croucamp says if Telkom retrenches purely on financial reasons, it may not convince anyone it is necessary to cut staff. He cautions, however, that the improved numbers could be short-term. "They've got to be careful what they're arguing."
Telkom notes that two of the key components in ensuring financial stability and sustainability of the company are managing costs and growing revenue. Both are necessary and cannot happen in isolation of each other, it says.
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