Telkom is again about to go through a painful retrenchments programme as it fights to contain costs in a tough macroeconomic environment.
The partially state-owned telecommunications operator said on Tuesday that it has entered into a formal consultation process under section 189 of the Labour Relations Act to restructure “certain operations”. As many as 15% of Telkom’s 11 500-strong workforce – or about 1 725 people – could go as a result of the restructuring.
“The process will impact all business units and subsidiaries and is intended to ensure the sustainability of the group,” Telkom informed shareholders via the JSE’s stock exchange news service. The company has dramatically reduced its staff complement over the past decade as it restructures and moves away from legacy technologies like copper in favour of next-generation technologies that generate lower profit margins.
“As the group manages the delicate migration of revenue between old and new technologies, it is challenged with managing the costs associated with the different technologies, and the competitiveness and sustainability of the group,” it said.
“Management has therefore embarked on a restructuring programme, which includes the S189A process, to optimise group costs in line with evolving technology capabilities and demands.
“For Telkom to navigate the migration to new technologies as well as current economic headwinds effectively, the Telkom board has supported that management start a consultative process aimed at restructuring the organisation to meet future demands.”
Earlier on Tuesday, Telkom said it plans to raise R1-billion by the end of its financial year — 31 March 2023 — through the sale to external financial institutions of “qualifying receivables” related to upfront handset and device sales.
Under pressure
This is as the telecommunications operator’s free cash flow comes under severe pressure due to the impact of “front-loaded investment in working capital”.
The subsidisation of smartphones and other devices, designed to grow Telkom’s contract user base, is putting huge pressure on company margins and cash generation.
“The working capital investment in mobile handsets and post-paid cost of sales are immediate costs, with corresponding revenues recognised over 24 to 36 months and thereby do not immediately offset the upfront costs associated with growing our post-paid subscriber base,” Telkom said.
Despite “good” top-line growth and optimisation of roaming costs with roaming partners MTN and Vodacom, the migration away from legacy products – especially copper-based solutions – coupled with its investment in post-paid to drive higher annuity revenue and the impact of sustained load shedding has put pressure on costs, Ebitda (a measure of operating profitability) and cash flows, Telkom said in an update for the quarter ended 31 December 2022.
