Telkom burning through cash

Telkom is burning cash at an unsustainable rate, the company’s chief financial officer Dirk Reyneke warned employees in an internal document on Tuesday.

“Generally, we have managed our addressable costs reasonably well but the challenging economic and competitive environment, as well as delays in executing strategic value unlock projects, have placed us under enormous pressure,” Reyneke said.

“The macro and global economic circumstances as well as foreign exchange rate deterioration, had a severe impact on multi-year contract commitments and costs.”

Reyneke’s statements came in the context of an email Telkom CEO Serame Taukobong sent to staff announcing that no one would be receiving bonuses.

Earlier in the day, during the company’s annual results presentation, Taukobong said there would be no salary increases or bonuses at Telkom this year.

“We need to earn and make sure that delivery, and focus on delivery, is what we pay for,” Taukobong told media and investors.

“It is a tough decision that we had to make, but it highlights that at the new Telkom, execution is first above everything.”

In his email to staff later that afternoon, Taukobong warned that they expect Telkom’s headwinds to continue as they balance trying to grow the business while managing load-shedding.

“The bargaining unit starts negotiation against this background. I urge the negotiating teams to negotiate in good faith, mindful of the challenges that lie ahead,” he said.

This statement suggests that Taukobong’s zero salary increase announcement to shareholders may not have been the whole story, as the unions had not yet had their say.

Taukobong also referred to the recent wave of voluntary early retirement packages and retrenchments at the company.

“These challenges require us to work differently. With the recent completion of the Section 189 process and shifting workloads we must continue to provide the same levels of service to retain and grow customers,” he said.

“What these results show us is that a marginal increase in revenue is not enough.”

Taukobong said they must reduce the cost of doing business and that Reyneke had provided guidance on what they must do immediately.

“In addition, I challenge you to find more ways in your own areas that can help the organisation reduce costs without compromising growth,” he said.

In his guidance, Reyneke said Telkom’s revenue is not growing at the rate they need while they try to mitigate the impact of declining legacy revenues.

He said he was implementing the following cost-saving initiatives with immediate effect:

• No discretionary spend.
• Limit travel, especially overseas trips and conferences. All overseas travel to be motivated by the BU CEO or Functional ME at Corporate, for approval by the CFO. “Lockdown proved that we can do business without travelling,” he said.
• Seminars: No international conferences and seminars until further notice.
• Limit support function costs — no capital expenditure for support functions.
• Appoint only critical vacancies — current stringent approval process to remain in force with all appointments approved by GCOHR.
• Overtime: Manage our overtime strictly. “If it does not affect service delivery directly, then we should not be working overtime,” he said.

Reyneke also said they decided to implement the following measures related to capital expenditure with immediate effect:

• Defer 20% of the planned Capex budgeted for the 2024 financial year to 2025.
• Align expenditure associated with the resultant reduced FY24 Capex Budget to 30% in first half (H1) and 70% in second half of the year (H2).
• Maintain priority on growth areas, especially Capex initiatives that translate from start to completion to cash in the shortest timeframe.

MyBroadband contacted Telkom for comment about Taukobong’s email to staff and Reyneke’s guidance on spending.

Taukobong had told media and investors earlier in the day that Telkom doesn’t need a knight in shining armour to buy the company and rescue it.

He was responding to a question about recent reports that a consortium led by former Telkom CEO Sipho Maseko had offered a R46 per share deal to buy a controlling stake of the company, and MTN’s previous offer to acquire 100% of the business for a reported R60 per share.

He said Telkom has the right levels of liquidity and does not need to sell to achieve its strategic value-unlock initiatives.

Reyneke’s statement internally that the company is burning cash unsustainably calls this claim into question.

“The memo is part of normal management instruction to re-enforce the need for financial discipline and Capex management,” a Telkom spokesperson told MyBroadband.

We asked if it was accurate to read Reyneke’s remarks about burning through cash unsustainably as meaning that Telkom’s finances are dire.

“While Telkom expects cash flow pressures to continue this financial year, the exercise of financial discipline is not an indication of a dire situation,” the spokesperson told MyBroadband.

“Cash flow will be under pressure due to once-off staff restructuring costs, the second spectrum payment, further Capex funding to support growth areas and funding plans to mitigate the impact of load-shedding,” said Telkom.

“With these anticipated activities, management saw it prudent to reinforce the need for financial discipline.”

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