Telkom shareholder earnings hit by voluntary severance and early retirement packages

Telkom's half-year results reflect a 3.3% decrease in headline earnings per share (HEPS) to 288c, mainly due to the costs associated with early retirement and voluntary severance packages.

The telecommunications company on Tuesday issued its financial results for the six months ended September 30, 2018. During the period the group's early retirement and voluntary severance packages cost R228m, and the related taxation amounted to R80m, impacting headline earnings per share.

Excluding these costs reflects an adjusted HEPS up 10.3% to 328.6c. The group's profit was down 12% to R1.42bn compared to the R1.63bn reported for the same period last year. The group's interim dividend was down 5.1% to 112c, from 118c.

Telkom's adjusted earnings before interest, taxation depreciation and amortisation is up 2.9% to R5.3bn – it excludes the impact of the voluntary severance and early retirement packages.

Revenue increased 5.2% to R20.8bn and was driven by Telkom's mobile business unit.  

Of the results, Group CEO Sipho Maseko said the telecommunications company's investment strategy was bearing fruit. "Our results attest to the success of our investment strategy and come despite a challenging operating environment," he said.

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"The mobile business was a growth driver with an impressive service revenue growth of 53.8% to R3.6bn supported by strong customer growth of 50% to 6.5 million," he explained.

Telkom's capital expenditure of R3.3bn went towards mobile and fibre – and have yielded returns in mobile service revenues.  The capex to revenue ratio is at 15.7%, below guidance.

"The business expects capex to revenue ratio to be in line with its guidance by the end of the year as they continue to invest in their new revenue streams which are now driving growth in an evolving technology where traditional revenue is dwindling," said Maseko.

"Free cash flow recovered from negative R963m in the prior year to positive R179m. The improvement was mainly due to an 18.9% decrease in cash paid for capital expenditure and a 13% increase in cash generated from operations before dividend paid," he explained.

Possible redundancies

As for Telkom's future, Maseko hinted at possible redundancies in the business; however, there is extensive deliberation, which will take place ahead of any decision that is taken.

"Telkom is focusing on creating efficiency and effectiveness in the context of growing the business and achieving operational excellence through human capital investments.

"We continue working on understanding the leadership and operational capability sets required to drive performance. This may include the reorganisation of functions, identification of skill gaps and, in certain instances, possible redundancies," said Maseko.

"We continue to invest in talent within our organisation to retain key skills and ensure our future competitiveness."

The group's shares, which opened at R57.28 on Tuesday morning, were trading at R56.01 at 10:30.