Telkom’s cost-cutting to target suppliers

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BR Telkom 8878 Independent Newspapers Telkom Tower in Pretoria. The company spent R17 billion on third party suppliers in the 2013-2014 financial year. Photo: Simphiwe Mbokazi

Telkom is set to cut back its supplier base to curb its “uncompetitive” cost structure.

The country’s largest fixed-line operator, which spent R17 billion on suppliers in the 2013/14 financial year, has 2 400 active suppliers. Approximately 80 percent of the sum spent on suppliers went to 23 of the largest.

Telkom has also, as a last resort, engaged in efforts to reach an agreement with unions after months of speculation regarding the retrenchment process in its cost-cutting endeavour.

The company said that, after extensive facilitated consultations and deliberations, management and labour had reached consensus that the current restructuring process would proceed.

Since Sipho Maseko joined as chief executive last year and announced its turnaround strategy, Telkom’s share price has more than tripled.

From a low of about R7bn in March last year, its market capitalisation has risen to more than R27bn. This follows the initiation of the first phase of a turnaround strategy that consists of six chapters intended to get the company out of a depressive state where revenue is pressurised by high costs and wasteful expenditure.

Ian Russell, the chief procurement officer, told Business Report that Telkom was in the process of managing its costs to ensure that it spent less than what it had in previous years.

“Our current cost structure is uncompetitive compared with international telecoms companies. The step we have taken should make us more cost competitive.”

Russell would not divulge the names of the companies that may lose millions of rands worth of business as a result of the measures taken to curb costs in favour of a more attractive balance sheet.

“The agreements between specific suppliers are protected between ourselves and the organisations concerned. However, the trick is to see how we can best derive value from larger suppliers.

“The procurement value delivery plan is focused on taking as much as possible out of the 2013/14 financial year third party cost base of R17bn over a three-year period,” he said.

According to information supplied by the group, it planned on re-investing in its procurement capabilities, which would see it develop closer, more strategic partnerships with key suppliers in order to retrieve more value for its money.

The company said it would also conduct a strategic end-to-end review of its property portfolio to offload assets worth R2bn that contributed to its annual property costs.

Russell said Telkom’s property portfolio consisted of 23 million square metres of land and 2.2 million square metres of buildings, of which 1.7 million square metres was owned by the company.

He revealed that in the past financial year, Telkom had “incurred more than R2bn in property related operating costs”.

The property portfolio runs to 15 345 locations, of which 12 762 were masts or towers, Russell said. Over the next two years, Telkom will identify and sell excess properties.

The shares gained 0.65 percent to close at R54 yesterday.


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