Retrenchments cost Telkom hundreds of millions

Telkom has revealed that its retrenchment and voluntary severance packages will cost the company approximately R591 million, having a significant impact on its full year earnings.

In a 29 April trading statement the telco reported that basic and headline earnings for the full year ended 31 March 2015 would be between 10% and 30%, and 20% and 40% lower, respectively.

As the full year report includes items that do not form part of normal business operations – such as the retrenchments – normalised earnings would actually be significantly higher.

Telkom provided the following breakdown:

31 March 2014 (Reported) Change 31 March 2015 (Expectation)
Basic Earnings Per Share
Reported 758.1 c 10-30% lower 76-227 cps lower
Normalised 285.2 c 100-120% higher 285-342 cps higher
Headline Earnings Per Share
Reported 861 c 20-40% lower 172-344 cps lower
Normalised 388 c 40-60% higher 155-232 cps higher

Items that are not part of the results from normal business operations include:

  • Provision for retrenchment and voluntary severance and retirement packages of approximately R591 million with a related tax benefit of approximately R165 million in the current period.
  • An approximately R546 million tax benefit on the payment to an insurer for the transfer of post-retirement medical aid liability for certain pensioners.

According to Telkom, the increase in normalised basic earnings for the year is due to lower payments to mobile operators resulting from the benefit of approximately R743 million from the reduction in termination rates.

“Our performance for the full year to 31 March 2015 continued the trend experienced and reported on in our interim results where a challenging operating environment was once again compounded by competitive pressures and regulatory interventions,” said Telkom.

“We have managed to further stabilise the business and have performed reasonably well despite these challenges.”

Revenue pressure

The operator noted that fixed line voice usage remained under pressure, and that segment along with the lease line revenue streams would be in line with trends reported in the six months ended 30 September 2014.

The company’s mobile arm saw growth in both subscribers and postpaid and prepaid ARPU, while its data offering “is performing well with usuage and revenue growing year on year”.

Cutting costs

The group said it has focused on restructuring its cost base and imposed “efficiency interventions” to achieve profit growth in its core business.

“Although we managed to further improve on cost efficiencies in certain areas, we experienced delays in the implementation of other initiatives.”

The delayed initiatives included the workforce reduction initiative and the renegotiation of certain key contracts.

Other cost-cutting measures implemented by the telco include a reduction in marketing expenses, consulting and business transformation expenses, as well as reduced vehicle costs.

“We also reduced expenditure relating to our post-retirement medical aid liability for in-service members, certain pensioners, and part time staff.”

Telkom will release its results for the year ended 31 March 2015 on or about 8 June 2015.

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Retrenchments cost Telkom hundreds of millions