Telkom SA SOC Ltd (TKG) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. and welcome to the Telkom Limited Q1 FY 2025 Trading Update for the quarter ended 30 June 2024. [Operator Instructions]. Please note that this call is being recorded. I would now like to turn the conference over to Group CEO, Serame Taukobong. Please go ahead, sir.

Thank you, [ Kai ]. Good afternoon. Welcome to our Q1 update. In the room, I'm joined with Nonku, our Group CFO; the IR team, as well as [ UT ] our Chief of Strategy. In the morning, we published our Q1 trading update, which I'm sure you've all read, and I'll provide the key highlights of the trading update, beginning with the business performance. Nonku will then give an update on dividend and EBITDA performance and BU level for the first quarter. I'll return to give an update on the Swiftnet proposal -- disposal, touch on the regulatory environment, as well as Phase 2 of the BCX staff restructuring. We'll then take any Q&As that you have for us. We've had a good start to the financial year, achieving positive quarterly results and weak economic conditions and challenging trading environment with pleasing performance in the top line, benefiting from our data-led strategy and compelling value propositions. Our NGN revenue streams continue to be in positive momentum and grew by ZAR 576 million, an increase of 7% and they comprise of 80.7% of group revenue in the quarter. We saw good growth in group EBITDA and an improvement in the group EBITDA margin. Demand for data traffic continued with fixed and mobile data traffic growing substantially in the quarter. We welcome the recommendation of the Swiftnet disposal by the competition commission to the competition tribunal for approval, which takes the transaction a step towards its finalization. Let me now go through the performance of our business units, starting with Telkom Consumer. Telkom Consumer expanded the revenue -- sorry, Telkom Consumer expanded revenue, low digital [indiscernible] mix on the back of data-centric approach stemming from both the mobile business and the expansion of fiber offerings. The fiber subscriber base within the consumer grew by 8%, with fiber ARPU increasing by 12.5% and revenue growing 25.1%. The legacy revenue in consumer continues to decline in line with the strategy of transitioning customers to next-generation technologies and now makes up 3.1% of total revenue. Mobile sustained its mid-single-digit revenue growth, driven by the continuous delivery of innovative and value-driven offerings. Propelling this growth whilst an impressive mobile service revenue growth of 9.5%. Increasingly, customers saw the value from our [ CVM ] platform, Mo'Nice, which now accounts for 45.4% of total service revenue. The driving force behind the mobile performance stems from the strengthening of our customers, of our subscriber base which shows by 14.6% to 21.2 million total subscribers, while blended ARPU largely held at ZAR 81. Our prepaid segment experienced an increase of 17.4% to 80.2 million subscribers year-on-year whilst maintaining ARPU at ZAR 62 at the end of June. In the first 6 months of the calendar year, we added 1.4 million prepaid subscribers over 50% of the additions coming from Q1 F2025. The postpaid subscriber base remains steady at approximately 3 million subscribers with ARPU remaining unchanged at ZAR 183 compared to the same period in the same previous year. Mobile data traffic increased by 25.8% to 414 petabytes. The data growth was bolstered by a 15.1% increase in mobile broadband subscribers to 13.5 million, comprising of 6 -- comprising 63.5% of total subscribers. As a result, our mobile data revenue had a positive growth of 12.9%. We continue to experience robust growth of our beyond connectivity services with revenue holding at ZAR 407.5 million. A significant contributor to this growth is the airtime advance products which increased 32.3% year-on-year and now represents 32.9% of our total recharges. Looking now at Openserve. Next-generation port services maintained the upward trajectory during continued growth with fixed data NGN revenue increasing by 7.1%. As Openserve strives to differentiate its product portfolio and strengthen its external wholesale channels, its contribution to Telkom's overall revenue grew by 9.2%. This external wholesale channel -- the external wholesale channel experienced NGN revenue growth of 9% and are now representing 94% of overall external wholesale revenue. Openserve overall revenue continued to decline low single digits, primarily driven by a decline in voice and legacy revenue. Homes passed by Openserve increased by 13.4% to 1.3 million, and its connect-led strategy continued to deliver positive results with an increase of 19.5% and the number of homes connected to 615,000, resulting in a connectivity rate of 49%, which continues to be market leading. With the increase in demand for connectivity and high-speed broadband, Openserve continued to see growth in data consumption as advanced by 33% to 681 petabytes for the quarter. Openserve's Interaction Net Promoter Score, IPS (sic) [ iNPS ] was 72.3%, a 3.3% increase year-on-year, while its network reliability remained at the forefront of the industry with an exceptional performance of 99.9% across access, transport and core network. The continued execution on improved green energy mix, through the deployment of lithium batteries and solar energy solutions together with an improved diesel delivery model, coupled with upgrades of technologies and infrastructure at key central offices along the improved stability of the electricity grid resulted in a diesel spend decreasing by 84.6%. Onto BCX. BCX revenue increased low single digits on the back of strong performance in the IT hardware and software business. The IT reported revenue grew mid-single digits, primarily driven by the continued performance of the software and hardware businesses. While the low-margin hardware and software businesses sustain revenue, it's done to strategically allow BCX access to a wider client base and facilitate expansion into high-margin IT services in order to improve the product mix. The growth in the IT hardware and software business is primarily due to the growth in the local business unit with an increase of 29.8%. The converged communication business revenue declined driven by the continued migration from legacy services. Legacy telephone lines continue to decline and resulted in the voice revenue decline of 14.6%. Data connectivity revenue, which contributes 33.9% to Converged Communication revenue increased the NGN revenue share to comprise 78.2%. On the Swiftnet side, the power build program -- the tower build program, sorry, remained on track with additional towers being added and in-building solutions sites being constructed during the quarter. Revenue from growing customers increased in the early teens underpinned by inflationary escalations, new tenancies, 5G expansion, antenna upgrades as well as new tower builds. The planned rollout of power as a service is an execution phase and on track with 141 solutions built and connected to customers during the quarter under review. Power-as-a-service as part of to generate revenue on site connected to customers as Swiftnet expects to continue significantly to contribute significantly to the new growth in the current financial year. Tower disposal of noncore properties charged continued to rationalize the property portfolio through accelerated disposal and transfer of properties that are no longer core to the group's operational requirements. This ongoing process will continuously reduce the property footprint, optimize property operating costs and release cash for Telkom. We began the year with 42 properties with a sales value of ZAR 287 million, undergoing the conveyancing process with a target to transfer them during the financial year. 19 properties were successfully transferred and sales proceeds of ZAR 161 million realized in the first quarter. The first auction for additional properties approved during the quarter was completed in June resulting in sales offers for 9 properties to the value of ZAR 33 million, with signature of sales agreements in progress for these properties ahead of commencement of the conveyancing process. Gyro plans to dispose of more noncore properties, including these previously earmarked for property development, during rest of the year. I'll now hand over to Nonku to go through the revenue and EBITDA performance for group as well as per business unit. Nonku?

Thank you, Serame, and good afternoon or greetings, ladies and gentlemen. Now I'll take you through revenue and EBITDA performance for the quarter. Starting with the group view. Group view interest within the guidance by 3.9% to ZAR 10.9 billion and driven by growth in demand NGN offering. Group EBITDA grew significantly by 24.1% to ZAR 2.8 billion, and this is due to NGN revenue growth, and this was supported by direct cost resulting from our ongoing cost optimization projects. We also benefited from the stabilized electricity supply in South Africa during the first half. Group EBITDA margin improved 4.2 percentage points year-on-year to 25.5% for the quarter. If I look now at each BU and I will start with the revenue performance, and then I'll move to the EBITDA performance. Telekom Consumer recorded a 2.6% interest in revenue to ZAR 6.6 billion. Mobile revenue increased by 5.3% to ZAR 5.7 billion. And as mentioned by Serame, this growth was propelled by mobile services revenue increase of 9.5% to ZAR 5 billion. Mobile data revenues saw a solid growth to ZAR 3.8 billion. On Openserve, revenue declined by 2.4% to ZAR 3 billion. This was primarily driven by a decline of ZAR 188 million invoice and legacy revenue despite the ongoing growth that we've seen in the NGN services. BCX revenue increased by 2.4% to ZAR 3.2 billion. The IT business reported revenue grew by 7.1% to ZAR 1.8 billion, and this was primarily driven by the software and the hardware business which saw growth of 22.5%. Converged Communications revenue declined by 3.2% to ZAR 1.2 billion. Net revenue increased by 5.2% to ZAR 343 million with revenue growth that we saw coming from customers that continue to increase by 14.5% to ZAR 285 million. If I move to the EBITDA detail, Telekom Consumer EBITDA increased by 28.4% to ZAR 1.2 billion. This was at the back of the solid revenue growth the prudent cost containment initiatives that we have been driving. And we saw an EBITDA margin improvement of 3.6 percentage points to 18.2%. Mobile EBITDA advanced growing by 35.7% to ZAR 1.5 billion, and this was due to strong revenue growth and particularly in the prepaid domain and reduced load shedding costs, and this resulted in EBITDA margin of 26.8%. Openserve EBITDA increased by 16.8% to ZAR 1 billion as a result of Green Energy, improved delivery model as Serame indicated earlier as well. and also coupled with upgrades excess key central office location, which also saw an improvement in stability of the electricity grid. This resulted in an increase of 5.5 percentage points in EBITDA margin to 33.5%. BCX EBITDA, however, decreased by 8% to ZAR 253 million. And this is as it continues to be impacted by revenue growth from low-margin hardware and software business, along with Converged Communication legacy declines. However, this was offset by an improvement in impairment of receivables as collections improved. EBITDA margin contracted marginally by 0.9 percentage points, yielding a margin of 8%. Swiftnet EBITDA increased by 7.7% to ZAR 252 million and a strong EBITDA margin, 73.5%. On other activities that we drove in the first quarter, we successfully issued 2 bond instruments with 3-year and 5-year tenants raising EUR 345 million and ZAR 475 million in these channels, respectively, in our recent bond auction. We raised a total of ZAR 740 million, and this was to refinance a maturing debt in the 2025 financial year. The cost of the issuance that was achieved was really competitive pricing, improving the group debt maturity profile and liquidity position. We consider this an affirmation of the group outlook by local debt capital market that will continue to be a source for refinancing our maturing bonds. On July, Moody's affirmed our corporate familiarizing at Ba2 and national scale rating at Aa2 with a stable outlook, and these ratings are supported, amongst others, by the expectations that Telekom credit metrics will strengthen over the coming 12 to 18 months. I will hand back to Serame to go through the rest of our presentation for this afternoon. Thank you, Serame.

Thank you, Nonku. So let me cover the last leg. On the update on the Swiftnet disposal. As I've indicated, we do welcome the recommendation of the Competition Commission to recommend the transaction for approval to the tribunal. With the following condition, the key condition is to address is a public interest concern where the purchaser has commitment to ensure continued procurement spend towards small and medium enterprises that are owned by historically [ disadvantaged ] persons, for a period of 5 years from the merger implementation date. The main outstanding expense of conditions basis to close the transactions are the regulatory approvals acquired from ICASA and the Competition Tribunal and we are diligently working towards securing these approvals. So very positive developments in that front. On other regulatory matters, particularly in regards to ICASA, on 9th of May, ICASA indicated that on the 9th of May 2024 -- ICASA indicated that the licensing of additional high spectrum will be delayed to 2025, 2026. This would allow sufficient time for the authority to consider all relevant issues in designing the process. Just to update the market a little further, there has been current activity where a mobile network operator has launched a review application regarding spectrum sharing or pulling arrangements with other mobile operators. This may have a bearing on the design of the upcoming spectrum license process. The second point in regards to updates with ICASA is the review of the call termination base that the review of call termination rates with ICASA are ongoing. And at Telkom, we have provided them inputs on the proposed rates and costing methodology, which was followed by a public hearings in June. Telkom look forward to the publication of the final regulations and that these will facilitate pro-competition outcomes in the voice market. As far as the SIU matter, the state attorney is progressing the appeal. And on the 21st of June, we received an application for condonation of the late filing of the SIU notice of appeal. The Supreme Court of Appeal subsequently issued a matter in terms of where wished confirmed lodgement of the notice of appeal and indicated that the record of high court proceedings must be filed by the 27th of September. The matter before the Supreme Court of Appeal, and we will continue with the steps to uphold the high court order which is in Telkom's favor. The last matter is BCX Phase 2 restructuring. The market conditions remain challenging for BCX and industry dynamics represent a permanent recent reset. And this calls for us to relook at BCX structure as a business in order to ensure the sustainability going forward. We have initiated Phase 2, of BCX's staff restructuring and serve the available unions with the Section 189 notice and requested CCMA facilitation. This was done on the 1st of August. The group staff restructuring implemented early 2023 was Phase 1 for BCX to allow them to apply measures to improve their position with the hope of limiting or further limiting the impact of employees. Despite these efforts, BCX continues to face persistent operational and financial challenges, which necessitates further business challenges and Phase 2 of the staff restructuring. The staff restructuring will only impact BCX and not other businesses. This concludes the call, and I will now hand over to the operator for any questions and answers. Thank you.

[Operator Instructions]. The first question we have comes from Myuran Rajaratnam of MIBFA.

Well done for a good quarter. I suppose, I've got 2 questions and 1 comment, if I can. Just to confirm, I suppose it's more a clarification on the first one. Your mobile data traffic seems to be accelerating. If you just look at Q3, Q4 last year and Q1 this year, the run rate seems to be accelerating. Is that correct? Mobile data traffic.

Do you want to ask all the questions at once, Myuran?

I can do that as well. Okay. I'll ask the second question. I'll keep the comments for the end, if I can. So the second question is, at the full year results, in the presentation, you pointed out that you optimized roaming for the mobile network and that the mobile roaming costs were down 8.5%, if I remember correctly. For best FY '24 versus FY '23. Now in Q1 '25 versus the comparable quarter last year, how much did the mobile roaming cost come down by? If you can give us some steer there, that would be great. So if you'd answer these 2, if you can.

There was a question and a comment.

Do you want the comment as well? Okay. So I'm seeing your Chairman on Wednesday, right? And we are shareholders. And you mentioned before, Serame, that a range of anything between 8 to 14 is typically for fiber businesses. But this quarter, you've shown to some extent, the fiber-to-the-home business has pricing power. The fact that your ARPUs are going up. And we've seen that in the mobile postpaid business in South Africa so far for a few years now, but you're showing that it can be done in the fiber-to-the-home business on the retail side. So with the pricing power that's latent in your business, how can I put this, hell no, if it's anything less than 10, is I'm going to say to your Chairman. I thought I'll say it to you as well, because we are a team that we get full value for this open business. It might be a hidden gem. It might not be, but it looks like it might be a hidden gem if there is some pricing power in the business. And just the last comment as well. I think we should focus on South Africa, there's been some talk in the market on the streets that you might be interested in something in SABIC regions and things like that. There's enough to occupy Telkom. And I'm going to tell the Chairman the same thing. There's enough to occupy Telkom in South Africa. Hell no to anything else that, unless it's on a onetime multiple or something crazy like that. Maybe I'll leave it there. Thank you, good call today.

Thank you, Myuran. Maybe I'll try and answer the first question, you are right. I mean, if you look at the reported numbers, the mobile data has grown and is continuing to grow on a quarter-to-quarter perspective. So that you're absolutely right on both what we reported in, where we ended at the year of March. So if you look at just year-ending March and where we are right now, so that's the positive trend that we're seeing. I mean, we have reported in the current just year-on-year, I think 25% odd growth in mobile data traffic. So that trajectory is we are seeing -- holding in a positive growth rate. In terms of roaming traffic, we did report a reduction, you're absolutely right of a 1% decline at the year-end, as [indiscernible] and his Chief did not give me the quarter-on-quarter decline. I'll have to go back to the numbers on that one. Can I come back to you on the quarter-on-quarter breakdown. I lost Q2 or the Q2 I don't have it, but I can definitely look that up to you. And yes. Well, I will dig it out to you because if you look at contribution that drove the relative costs [indiscernible] in mobile it would be a significant contributor in the improvement in the mobile numbers with the payment operators being lower and a bigger contributor of that payment to operate is mobile. So I can extract the exact number for you.

The next question we have comes from Jonathan Bradley of Absa.

Just 3 from me, please. Firstly, on Telkom Mobile. Just postpaid subscribers have been largely flat over the past year. Are you expecting to aggressively push on the postpaid side again in the near future? Or is this sort of the level you're looking to remain at. And most of the growth from year on out will be from sort of price increases in postpaid and then growing the repaid base? And then secondly, just tied to that first question on prepaid pricing, are you planning to lift [ headline ] pricing in line with your competitors? Or is there still more to do on the Cvm side before you look at headline pricing? And then lastly, just on the outlook for CapEx in the mobile business this year on EBITDA, given the robust data traffic growth. And last year, you sort of spent a bit less than more. So just outlook for CapEx on the mobile business view. Thanks very much.

On the postpaid, I think what we've indicated with postpaid as we said to the market, 18 months, I mean, 18 months ago -- 18 months ago, we went on the postpaid handset acquisition to recalibrate our prepaid/postpaid shape in line to where we wanted to be. We were historically at about a 90,000 balance. I think we're quite happy with the way we are right now in terms of the prepaid, postpaid mix. The focus now, is we're driving strongly on SIM-only proposition. We have changed the mix from a high handset type acquisition, you can see more on your midrange, I think really driven by the cost and affordability in our market. So we do still keep our fingers in the handset of an acquisition, but lowering the mix to more to your mid to lower-end side of the market reflecting of what we've seen in terms of affordability in the market, but still maintaining some propositions with SIM-only propositions, particularly for renewals. So that's working for the team. They do, however, also drive quite strongly with the [ RT15 ] particularly in acquisition in corporate and government where telecom was not as strong. So that -- it will continue to drive that. On prepaid in terms of pricing, yes, we did not trigger pricing activity in line with our competitors. But it is something that I think Lunga and his team will look at in the long term, not right now. I think they will look at the Cvm mix and make sure that they remain competitive. It's not something that we are writing off to now, but I think as market conditions prevail, we have lagged the market. We have been on par with the market on postpaid, but it is certainly something that we will not write off. Our CapEx outlook remains the same as we've guided when we spoke to the market, I think, a month ago, we are within the guideline. The guidance remains a change on mobile CapEx, we feel that in terms of what we have given the team is still within the ability to carry that data traffic. So the CapEx guideline -- [ Lunga ] is looking at me quite strongly. It remains unchanged at this point in time.

The next question we have comes from Nadim Mohamed of SBG Securities.

Good afternoon, congratulations on the good results. Just speaking from my side on mobile. Firstly, just on your prepaid subscriber acquisition, there seems to be an acceleration in the last few quarters. Looks like these are not low value [indiscernible] your ARPU is only 1% on that last quarter. Just want to give some color into the [indiscernible] just any specific competitive and any trajectory of that you can continue finding customers at this kind of pace. Secondly, if I look at the data volume growth of 26% relative to the data revenue growth of 13% year-on-year. It looks like you give a lot less volume relative to the lucky draws that [indiscernible] we compare this is giving me a lot of volume to get the revenue. Once we get to the target [indiscernible] market to achieve kind of come. And lastly, if you can give us some color on the improvement in mobile EBITDA margin [ 26.8% ]. So, I'm saying one of the 2 main contributed towards that margin expansion.

The thing that I just spent a few good years in the mobile business, so I can try and answer your questions. So if I take the acquisition, as I indicated, Nadim, when we last spoke, what the mobile team has really been focusing on without giving it away the secret sauce. At acquisition, it's been really a strong collaboration with our dealer network to really intrinsically focus on ensuring that they acquire the right step in terms of a higher value subscriber and focusing strongly on retention. So is really making sure that, that circle between acquisition and retention is a quite closely, avoiding your washing machine lower-value type subscribers. So it's a combination of, if you get the subscribers at a higher value. So the higher value proposition, we see that those subscribers stay the same longer. Obviously, on the dealers a longer 10-year subscriber gives them a far better ongoing proposition. So that mix seems to be working quite well. The team has also been piloting a combination as well of some low entry smart, I think they call it smart feature phone or something along those lines, which also drives that data type proposition. So it's a mixture of both at the retailers. Where we seem to be growing is from both, as [indiscernible] indicated, where we are saying that the target is your higher end of your 2G voice subscribers. So those high-end 2G subscribers who are looking to now rate into smartphones is where we are targeting intentionally to get those subscribers who want to move into your 4G and/or your data subscribers. That's where we are targeting. We talk to your second point of data value because of the ability of the Telkom Mobile intuitive design, we are able not to necessarily compete on price alone, but also offer more data at the same price point. So where the competition is being forced to drop at headline pricing, we are trying to make sure that we can at least maintain [indiscernible] level, so your average spend per user, but then offer more data at the same price point, which then is the sweet spot of at least keeping the average spend but offering more value to the customer at that same price point. So that takes care of your second question. The EBITDA margin, if you look, it's a function of a couple of things on a quarter-to-quarter. One, it does talk to Myuran's question of your roaming cost reduction. So that efficiency of mobile. Yes, you've got to see the lower load shedding does obviously have an impact because with lower load shedding means better efficiency for us because the higher the load shedding, the higher the roaming, which therefore, the higher the roaming costs. And also, as we indicated in our call, the reduction in overall revenue also has an improvement on your margin improvement. Over and above the other cost efficiency elements, which the guys have been putting in, but roaming does play quite a significant part of that. I have answered you there, Nadim.

[Operator Instructions]. The next question we have comes from Madhvendra Singh of HSBC.

Congratulations on good set of results. So I have 3 small questions. So given the margins are now back to 25% should we take this as a base going forward? Or there were some one-off mix? And second one is how strong mobile performance is likely to remain given the weak performance of other operators in South Africa and given the weak macro outlook also. Third one is about any other assets that you plan to monetize it we didn't. Thank you.

Could you please repeat the first one for me, please?

Yes. First one is the extension of what Nadim asked, given the margins are now back to about 25%. Should we take this as a base going forward?

I think I certainly would not model the first quarter for the year. I think we've certainly on the mobile side, we've been pushing advise. The target was to get 25% by '25, I mean, 25% by the year end in '25. So I think they've certainly started the year on the right note, it is 1 quarter. So let's see how they end up year. I think it's also important to be quite prudent. And so we are comparing what was a relatively soft quarter last year to a far stronger quarter this year. And yes, one has to factor in the fact that it was a quarter of load shedding, a significant portion of load shedding in the first many days of last year compared to this year. So all conditions in present one has to be prudent in taking that forward. As the base is getting bigger as well, one has to be quite prudent in how we take that forward. On mobile, we certainly are holding firm to try and hedge to that ambition of holding 25% by '25. That is about a year ending '25. I think on the fixed line elements, fixed line of the business, we are seeing the legacy part of the business coming down. And I think that's going to be quite continued -- continuing as we see that, and it's how we pick up the business going through. Your question in response to what is happening to the rest of the market, I can't comment, of course, on what competition is going to do, we stick to our path. And I think it's really one has to look at what are the microeconomic conditions in which we see ongoing in the country right now. Customers are under pressure, I think, as we all know in South Africa. And it really is how quickly can the end user recover. And I think from that perspective, that is going to put continuous pressure on affordability, and that is something that we should be cognizant of. And for us is really to maintain to make sure that our value propositions reflect the challenges that our customers have in their pocket. So the key thing for us is what we continue to do and drive and maintain the growth and maintain the performance for the rest of the fiscal. So it is a tough market. And I think these numbers are encouraging as they are have to be taken in the context of what was a relatively softer first quarter that we are comparing ourselves to.

The next question we have comes from Preshendran Odayar of Nedbank CIB.

Congratulations on the results, very strong performance from the guidance in this first quarter. I've seen that all the easier questions were answered and you got a bit of time on the challenge slightly easier one, if you don't mind, Serame. First one, can you give us an update of where gearing is at the end of this quarter, but it's not going to be materially different, but I just want to see how some of the EBITDA initiatives that you had. I mean the strong outperformance has floated into your gearing levels at the end of this first quarter. Second question is a bit of a follow-up on Myuran's question. I don't know if you can give us some detail on how much are you actually spending on roaming, and that's across your 2G and your, out of data roaming. I mean, I know a few -- I don't think it was last year. I think it was 1.5 years ago, in one of the presentations you gave a percentage of service revenue. I don't know if you can share that with us and also on the China later, the percentage split of roaming between the 2 leading partners that you now have? And then the last one, part of your announcement of the Phase 2 of BCX restructuring, would you be able to give us an impact an assessment of what you think the EBITDA impact and potentially a cash impact might be either for this year or will this carry on into next year? That's it. Thank you.

Thank you, Presh, would expect nothing less from you. Nonku, do you want to take the first one, one and what's the figures on roaming is for me.

Thank you, Phresh. So yes, the gearing levels, as we indicated when we reported at year-end, we continue to focus to ensure that we stabilize and improve. And therefore, with this performance, you may recall at year-end reported a net debt-to-EBITDA level of about 1.7x. We've seen marginal improvement just coming from the fact that we've been able to deliver improved performance. But also, if you look at the debt, we spoke earlier about raising ZAR 740 million from the debt market to refinance. But the H1 maturity was about ZAR 877 million. So that gives you an indication that we continue to focus on reducing the debt levels or at least keeping them stable to what we reported last year, but wherever possible, we're going to look for opportunities to Q2. And therefore, we are directionally still seeing an improvement, but the guidance currently remains at 1.5 to 1.9x as we indicated. So I'll stay with that one. And Serame, maybe you can touch on the next one.

So quarter 1 F '24 roaming as a percentage of revenue was 8%. Quarter 1 F '25 roaming as a percentage of revenue was 5%.

The next question we have comes from Jonathan Kennedy-Good of Prescient Securities.

Just 2 quick questions from me. First of all, with the change in government and some chances of improving sentiment in corporate. So just wondering how your pipeline looks at BCX on hardware sales, software sales, if the loosening in the budgets that corporates are deploying in those lines. And then also on your credit impairment side, in terms of realized credit losses on your accounts receivables, particularly with government. Is there any improvement there? Or is it just too early to tell? Thank you.

Thanks, Jonathan. I think at this point in time, it's too early to tell. I think if we look at -- I think the really biggest thing on at the end of the last financial year, what really drove us was a big focus on collections. I think in the pipeline, certainly the businesses you already -- yes, there are, I think, as people sickle the spending on government, which would have been slightly delayed because of the transition. I think now that everybody is sickle and is in their kind of new roles we are seeing certainly an acceleration of tenders and tender awards that were being delayed. So hopefully, that will pick up in the next couple of months particularly for BCX, given the government is the biggest spender in the IT sector. So even the tenders that we are waiting for that we are participating in that have come through. So we had some positive roles, which, unfortunately, I can't mention but will be waiting for Swiftnet permission to announce, but we've been successful as well. So these were processes that we've been waiting for the past 6 or 8 weeks for those awards to be announced, which are good with Telkom pass on, but it means that the uptake as a whole. So we are seeing those engines now beginning to pick off because PGs, ministers, et cetera, kind of play. So too early to tell, but I think the machine we seem to be working and pretty back into place.

And then just on the credit impairment side, sir?

Nonku, do you want to share more color on that? What are you seeing?

So on the impairment, we've not seen necessarily an individual. Last year, we spoke about an improved collection level from specifically government clients. We feel compatible that we're not seeing a deterioration from their -- or rather requiring an interest provision. There is quite a focused team. And to the point to raise, we have taken a proactive approach to basically get a sense of where others, where there may be changes to ensure that we have a focused and approach to make sure we foster relationships we take that back, but we're not seeing any risk of interest as such in requires credit loss provisions from the government perspective. And maybe to run a while, I'm on the podium, there's another question we didn't really answer from the Nedbank team, around the expected cost of the BCX restructuring. And as for now, we may not be able to give the numbers because the announcement was a few days ago. There's still consultations on the goal and we will basically finalize the calculation we've done all the details in that regard. But it's being Phase 2 of what we started with the rest of Telkom, it would follow the same principles as we did for the other part of the business.

The last question we have is a follow-up from Myuran Rajaratnam.

You mentioned earlier that your roaming revenues, roaming costs as a percentage of revenue is 5% for this quarter. Can you give us...

5% of mobile.

Yes, exactly, exactly. And can you give us a sense, firstly, you've been optimizing, from what I read for the last year, you've been optimizing the traffic to give to your partner, roaming partners. But you're also busy negotiating a new revenue contracts with your mobile partners. So is it more the less traffic that you've optimized that gives you the benefit of less cost? Or is it the new contract that -- I presume you signed it? Or are you busy to sign the term? Where are we on those things? I have a follow-up.

So the updates that we gave is that we have signed a 1-year extension with Vodacom because we are in the midst of doing technical testing on proof-of-concept or new technologies. You're a very technical savvy person. So we're taking out MOCN and MORAN technology. So whilst we're in the POC phase for that, that's why we extended the current contract, but we have also negotiated new tariffs with both MTN and Vodacom. So it's a balance of both that is allowing us to benefit from reduction in payments.

Right. And if I can just ask the follow-up, that 5% of revenue, so I'm talking about the 5% of cost that's roaming cost as percentage of mobile revenue, part of it's voice roaming and part of it's data roaming, right? Now which is the bigger component here? Do you spend more on voice roaming or do you spend more on data? I'm not talking about traffic. I'm talking about [ random ] sense here.

Would be more technically correct in this because there is more involved in this. I think, first of all, it's all -- the volume is small.

Yes. That's why I'm asking about [ random sense ], which is bigger? Is it voice [ random sense ] you're paying Vodacom or MTN or data [ random sense ].

[indiscernible] quote wrong numbers.

Voice.

Voice, right?

Now voice is the higher part of the roaming than data. Data, we run quite a very small percentage in based on our database that we currently have of data across the network. We carry a huge part of our data, voice is the area that we only have the most of.

And that's in random sense, right?

Right. Random sense but we can't give those numbers, Myuran.

Yes. No, no. I just wanted a sense of it.

Remember, a big chunk of our voice is actually carried on [indiscernible]. Because of our higher data proportional subscribers.

Yes. No. Well, then, guys. Good quarter.

Thank you, sir. Ladies and gentlemen, we have no further questions on the conference at this time. I will now hand back to Serame for closing comments. Please go ahead, sir.

Thank you. And thank you all for attending our call. And please, if you do have any further questions, do follow our page and our IR team. Thank you for your continued support, and we look forward to always engaging with you. Thank you. Have a wonderful evening.

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.