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Telkom job cuts to cost $90M

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Telkom's plan to shed around 3,000 jobs is going to cost the telecoms operator about R1.5 billion (US$90 million), and will have a negative impact on its earnings for the 2020 financial year.

This is according to a statement published by the group on Friday on the Johannesburg Stock Exchange (JSE) news service.

Telkom's share price dropped almost 17% on Friday on the back of the news, and was down another 6.8% by 13:00 CAT on Monday. The group's share price on the JSE has dropped almost 75% during the past 12 months.

Telkom said it has begun phase one of a two-phase restructuring process that includes offering 3,000 staff voluntary severance and voluntary early retirement packages as an alternative to enforced cuts. (See Telkom Planning Major Job Cuts.)

The group's latest interim results show it had 15,197 total group employees at the end of September 2019, making the planned cut about a fifth of the workforce.

During the past few years Telkom has reduced its employee numbers significantly, usually by offering voluntary packages.

In 2015/2016 voluntary early retirement and severance packages for 3,878 employees cost Telkom R2.19 billion (US$132 million) and hurt its financial results for the year ended March 31, 2016 with a 25% drop in full-year profit after tax.

In the 2019 financial year Telkom cut another 2,176 jobs at a cost of R728 million ($44 million) to the group.

Restructuring process
"The Restructuring Process follows the technological shift to fibre, LTE/LTE-A as new sources of revenue, notwithstanding lower margins. This has been compounded by a rapid decline in our traditional high margin fixed voice business, in line with global trends," Telkom said.

The operator said the cash outflow related to the restructuring process is expected in the first half of the new financial year.

"Available cash resources will be used to fund the Restructuring Process. This allows Telkom to remain within the current debt levels," it said. Telkom's net debt was R11.8 billion ($710 million) in September 2019.

"Although the multi-year transformation programme has reduced legacy fixed voice revenue contribution to Group revenue from 56% in FY2013 to 22% in FY2019, we have since seen an accelerated decline in fixed voice revenue in the second half of the financial year relative to the first half," the statement explained.

Telkom said its mobile business – which had 11.5-million customers at the end of September 2019 – had sustained its growth trajectory into the second half of the year from a higher base and continued to drive the overall group revenue growth, which offset the negative impact of the fixed voice revenue. (See Telkom Is Gaining Mobile Subs but Suffering ARPU Erosion.)

"However, the growth in the new revenue streams has not been sufficient to offset the negative impact on Group EBITDA [earnings before interest, tax, depreciation and amortization], therefore Group EBITDA continues to be under pressure," it said.

Paula Gilbert, Editor, Connecting Africa

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