Telkom has embarked on cost-saving programmes to ensure its sustainability moving forward as it continues to face challenges dragging its earnings.

The company is feeling the pressure from the impact of the migration from legacy products to new-generation network offerings, investment in postpaid to drive higher annuity revenue from this base and the impact of sustained nationwide loadshedding on the company’s costs, earnings before interest, taxes, depreciation and amortisation (Ebitda) and cash flows.

While the mobile and broadband strategies continued bearing fruit, the impact of ongoing loadshedding for the quarter and the increased mobile network footprint resulted in a higher cost base for the group, says Telkom Group CEO Serame Taukobong.

The group’s mobile sites are partially backed up through battery power; however, access network availability is materially reduced during Stage 4 loadshedding and beyond, negatively impacting on revenue and increasing roaming costs.

“Our core and aggregation network had a network availability of 99.99% during loadshedding as it has resilient backup power, which consequently increased spend on diesel fuel to ensure network availability, thereby also increasing our operating costs,” he adds.

Loadshedding resulted in a year-on-year increase of more than R150-million in additional costs for the third quarter of the year.

“This, coupled with the required investment in working capital to optimise the mobile subscriber base mix, negatively impacted on Telkom’s profitability for the current financial year to date,” Taukobong points out.

“We are mindful of these impacts on the future of our businesses and we have thus embarked on cost-saving programmes to be implemented with sustainable benefits materialising over the next six to 18 months to mitigate cost pressures and improve the group’s medium-term profitability.”

The initiatives target a return to a blended group Ebitda margin of more than 25%.

A number of initiatives are already in progress to address the group cost base and are expected to be visible in the medium term from the 2024 financial year onwards.

Telkom will be required to invest in exiting and reducing certain direct and operating costs.

“In addition, in order to mitigate the impact of frontloaded investment in working capital as well as ongoing pressure on free cash flow, the group plans to raise a further R1-billion by the end of the 2023 financial year through the sale of qualifying device receivables to external financial institutions to mitigate the impact on free cash flow.”

Telkom is also preparing to restructure certain operations, impacting on up to 15% of its workforce across the group.

The group will enter a formal consultation process with relevant stakeholders in terms of section 189 of the Labour Relations Act (S189A).

The S189A process, which will impact on all business units and subsidiaries and is intended to ensure the sustainability of the group, forms part of a broader restructuring programme aimed at optimising group costs in line with evolving technology capabilities and demands.

“For Telkom to navigate the migration to new technologies as well as current economic headwinds effectively, the Telkom board has supported that management start a consultative process aimed at restructuring the organisation to meet future demands.”

Telkom is also continuing to drive its value unlock strategy.

“Following the board’s in-principle approval to affirm and realise the value of Swiftnet through a full or partial disposal of the mast and towers business, a multiparty sales process started in late 2022 and offers are expected to be received during the course of March 2023,” explains Taukobong.

Telkom will evaluate the offers received and a further update will be provided in due course.