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Johannesburg - Details have emerged about the exact stores that phone company Telkom [JSE:TKG] plans to close because of their poor financial performance.
On Monday, the telecoms company announced a restructuring process which is expected to affect its Telkom Direct stores. The company also said it intends to outsource its call centre operations and the management of its IT legacy systems while it is reviewing its properties.
“Research has shown that it is, unfortunately, no longer viable to continue running some of the company’s 95 stores,” Telkom said on Monday.
In its announcement on Monday, Telkom did not detail which stores exactly it planned to shut down.
But Fin24 has received a document that outlines this information.
According to a letter sent from Telkom’s human resources department to labour union Solidarity, 20 Telkom Direct stores face closures across the country:
Long Beach Mall
Malmesbury
Paarl
Pinetown
Welkom
Bethlehem
Klerksdorp
Thohoyandou
Tzaneen
Witbank
Polokwane
Woodlands Flagship (amalgamate)
TTN/HO Direct
Silverton
Uitenhage
Jeffrey’s Bay
Upington
East Gate
West Gate
Vereeniging
“Telkom currently has 92 direct stores across the country. Some of these stores have consistently been running at a loss. Telkom has undertaken an extensive analysis of all the stores and has identified those that can still be retained, albeit still running at a loss, and those that need to be closed as there is no prospect of improving their financial performance in the short to medium term,” Telkom’s chief of human resources Thami Msubo wrote to Solidarity.
“There are various reasons for the poor financial performance of the stores. These range from poor location, close proximity of stores to one another and operating costs, including employments costs,” Msubo wrote.
Telkom added that the financial performance of the remaining 72 stores is also “relatively poor” and that the company “needs to reduce the fixed costs at these stores, including employment costs, for them to become profitable”.
When job cuts could happen
Subsequent to its plan, Telkom has further proposed that retrenchments are likely to take effect on April 30, 2015.
Employees affected by the job cuts are then expected to receive the likes of severance packages.
Telkom also plans to assist retrenched employees with finding alternative employment. However, the telecoms company itself said it is not in a position to offer re-employment to affected staff in the foreseeable future.
Meanwhile, Telkom has revealed other details about its total staff numbers as well as the extent of job cuts at the company over the last year.
“At the 31st of January 2015, Telkom employed approximately 18 384 employees,” wrote Msubo.
“Telkom has retrenched 379 employees in the last 12 months, based on operational requirements,” added Msubo.
Analysts’ reaction
In the meantime, analysts say Telkom’s move to implement restructuring is sensible while the telecom company’s share price is up just over a 0.5% to just above R77 on Tuesday morning trade on the Johannesburg Stock Exchange (JSE).
“From Telkom's perspective it makes a lot of sense, currently the company is a poor performer when comparing what it delivers, it's pricing structures and it's headcount when compared to international peers,” said Mark Walker - who is the Regional Director for research firm IDC the Middle East, Africa and Turkey.
Walker also told Fin24 that inefficiencies remain with Telkom from its days as a state-owned telecom monopoly.
Telkom was listed on the JSE in 2003. Today, government owns about 40% of Telkom shares directly and indirectly via the Public Investment Corporation (PIC) which has has 11% shareholding in the company.
“Telecommunications is a global industry that does not respect national boundaries or socio-political imperatives; the mantra therefore is to maximise shareholder profit through efficient use of resources and capital at hand. As Telkom was previously a state department many of the inefficiencies of such an organisational structure have remained and need to be streamlined. The alternative would mean that existing shareholders would continue to fund losses -this may be acceptable to the PIC and state shareholders but certainly not to the remaining 49% who expect a good return on their investment,” Walker told Fin24.
Walker further said that because Telkom products and services are available online, the need for a physical storefront also falls away.
Hendrik Malan, who is the Operations Director for research firm Frost & Sullivan Africa, said Telkom is not unique in its cost-cutting measures in SA.
“Other companies, such as MTN, are also going through cost cutting initiatives - Telkom is therefore not unique,” Malan told Fin24.
“This is a painful, but necessary process to ensure the longer term viability of its business.
“Operating such an extensive network of direct sales and support stores is costly. Although a physical footprint is still important, the current base is too wide, compared to local and international benchmarks, and probably does not make commercial sense. Telkom will most likely also consider changing the focus of the stores in the near future to move towards experiential shopping,” Malan said.
Telkom “wishes to avoid job losses”
Responding to questions from Fin24 on Monday evening about the Telkom shop closures, the telecom company’s Managing Executive for Group Communication and PR Jacqui O'Sullivan emailed a statement on the possible job losses.
“Telkom has made it clear from the start of this turnaround project, that it wishes to avoid job losses and that retrenchment would only be considered, as a last resort,” she said.
“In today’s (Monday’s) Working Group update, Telkom indicated that it would be moving ahead with four of the options under discussion in the Working Group. In line with the agreed upon process, Telkom will therefore initiate formal consultation with the unions on these options, later this week.
“At that time, Telkom will consult with organised labour on the detail of the options, including the number of potentially affected staff, as well as other pertinent details. We are committed to following the process and for that reason, we are currently not in a position to offer any more detail, other than what we provided in our media statement today,” O'Sullivan said.
