Telkom plunges as earnings hit by R1.5-billion in restructuring costs

Telkom warned shareholders on Friday that R1.5-billion in restructuring costs will hit its earnings in the financial year to end-March as it moves to get rid of as many as 3 000 employees in the first phase of a restructuring process.

The share price plunged, falling as much as 19.1% to R18.93/share, giving the company a market capitalisation of less than R10-billion (from R50-billion just nine months ago). The share closed at R19.43, down 16.9%.

Tekom said it has commenced phase one of a two-phase restructuring process, which could see as many as 3 000 retrenchments or voluntary severance and early retirement exits in the coming months.

“The restructuring process follows the technological shift to fibre and 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,” it said.

Phase-one restructuring costs will have a negative impact on earnings for the year to March 2020. 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.

Accelerated decline

Although it said it has made progress in moving from legacy technologies, an accelerated decline in fixed-voice revenue has been so sharp that new revenue streams have not been sufficient to prevent a hit to its 2020 earnings.

“Although the multi-year transformation programme has reduced the legacy fixed-voice revenue contribution to group revenue from 56% in the 2013 financial year to 22% in 2019, 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 JSE-listed telecommunications operator said.

“The mobile business sustained its growth trajectory into the second half of the year from a higher base and continued to drive the overall group revenue growth thus offsetting the negative impact of the fixed-voice revenue. However, the growth in the new revenue streams has not been sufficient to offset the negative impact on group Ebitda.”

As a result, group Ebitda – or earnings before interest, tax, depreciation and amortisation, a measure of operating profitability – “continues to be under pressure”. Telkom normally reports its full-year results to end-March around late May or early June. – © 2020 NewsCentral Media