Retrenchments to eat into Telkom earnings

Johannesburg - Telkom [JSE:TKG] slashed its half-year earnings forecast by up to 70% from a year ago, citing costs related to an ongoing restructuring process.

The company now expects earnings of between 390 cents and 455c per share, down by up to 70% from a year ago, for the six months ended September 30.

Telkom said it had set aside R234m ($21m) after tax for retrenchment, voluntary severance and retirements packages. It also has a R2.2bn net curtailment gain related to post-retirement medical aid liability.

Without those charges, Telkom would have posted earnings up to 20% higher, it said.

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The telecoms provider had said it needed to cut jobs from a management layer of 2 650 posts as part of a drive to bring down costs by R1bn annually for the next five years. It has not said how many positions will go.

A union representing some of the workers told Reuters last month that 304 managers had chosen voluntary redundancy, but another 104 had yet to find jobs within the new company structure.

"If you were to strip out the curtailment and severance packages, they have actually done pretty well," said Petri Redelinghuys, a senior trader at Inkunzi Investments.

"They are pulling out the bad teeth now hoping that it's going to pay off in the future. The market is buying their story as well."

Telkom shares have more than doubled this year, making the stock one of the best performers on the Johannesburg stock exchange.

The shares were trading 1.76% higher at R59.59 just after 12:00 on the JSE.