Telkom plans restructuring as profit tanks, fixed-voice revenue declines
JOHANNESBURG – Telkom said on Monday that it planned a major restructuring after its profitability tanked on the deterioration in fixed-voice revenue as a result of the coronavirus pandemic.
The group said its profit after tax fell to R2.08 billion from R3.34bn a year earlier, in line with the shift from legacy to next-generation technology.
It said earnings before interest, taxation, depreciation and amortisation (Ebitda) took a knock on the deterioration in fixed-voice revenue.
The group said it would suspend its dividend policy for three years and withdraw its medium-term targets on Covid-19. It said the board withdrew the payout to give it time to understand fully the impact of Covid-19 and had put other policies on ice to focus on capex programmes.
Telkom said capital would be redirected to the acquisition of spectrum and key capex programmes to ensure the sustainability of its business.
It said the new dividend policy to 60 percent of headline earnings annually would be suspended to maintain a healthy balance sheet.
“The imminent spectrum auction will require a substantial amount of capital and it is of strategic importance for Telkom to participate to ensure the sustainability of the mobile business,” said the group.
The company declared a final dividend of 50 cents a share during the period, taking its final payout for the year to R1.21 from R3.61 a year earlier.
Telkom, whose subsidiaries include Gyro, Openserve and the Yellow Pages, announced it planned to restructure its programmes, cut costs through its restructuring programme and other cost levers to protect the profitability.
The group said its revenue jumped 3 percent to R43bn, driven by a 54.4 percent increase in mobile service revenue.
Chief executive Sipho Maseko said the company needed to focus on managing its costs and acquiring profitable revenue.
He said the group would not pay a 14th cheque across its operations, as financial triggers had not been met.
“We are entering tough times,” said Maseko, adding that the group would not pay annual salary increases during the financial year in review due to the pedestrian state of the economy and the need to manage affordability.
“Our Ebitda was well below what we were meant to receive. Our profit after tax was lower, and we did not meet the financial criteria. Our revenue was good, and our cash generation was good. However, the gate is open only if you meet Ebitda and profit after tax.”
Telkom offered 2 271 employees voluntary severance packages at a cost of R1.18bn.
Peter Takaendesa, head of equities at Mergence Investment Managers, said the strategy sounded practical, but the tough operating environment mid-term could increase execution risk and delay some parts of the value unlock strategy.
“The key challenge remains on how to offset the decline in the profits of the legacy fixed-line business as the fixed-mobile migration market trend continues,” Takaendesa said.
He said part of the accelerated fixed-line decline at Telkom was self-cannibalisation as they migrate some fixed-line customers to wireless.
“This is expected to reduce their operating costs over the mid term – guidance of R1bn to R2bn cost reduction in the year to March 2021. They need mobile profitability to continue to improve and cost reduction to be accelerated in the legacy fixed-line business.”
Maseko said thus far 57 employees had tested positive for Covid-19.
“In the last two days, seven more people were found to be Covid-19 positive. We are getting into winter. It it will become likely that we will see more people test positive. We have conducted 1 000 tests; 19 people have recovered. Unfortunately, we have had two fatalities,” said Maseko.
Telkom shares closed 7.27 percent lower at R25.50 on the JSE on Monday.