Telkom SA SOC Ltd ($TKG)

Ladies and gentlemen, apologies for the delay. Good afternoon to everyone who has joined. Welcome to Telkom SA Limited's International Analyst Conference Call. [Operator Instructions] Please note that this event is being recorded. I will now hand over to Kamohelo Selepe of Investor Relations. Please go ahead, sir.

Thank you, Judith. Good afternoon, and welcome to our conference call for the financial year ended H1 March 2026. In the room with me is our Group CEO, Mr. Serame Taukobong and our Group CFO, Mrs. Nonku Dlamini. We are also joined by our Chief of Corporate Off, my name is Carl. I'm part of the Investor Relations team at Telkom. I will first take you through the key performance highlights for the year we reported on. We will then go into the Q&A session. After the Q&A session, I will hand over to our Group CEO for any closing remarks. Before we begin, the customary disclaimer applies to this call, and it is included in our results announcement material published in the morning. This has been a year of quality and resilient growth. Our data-led strategy is working and is clearly reflected in the results. Group revenue increased 1.4% with continued momentum in the data-led revenue now contributes close to 6% of group revenue, reflecting a meaningful improvement in revenue. EBITDA increased 5.8% to 12.5 billion with the EBITDA margin expanding to 1.1%. If you exclude the property sales, the group EBITDA margin is at 27.6%. Headline earnings per share increased 1.5% to ZAR 7. Free cash flow increased 10.4% to ZAR 2.1 billion. This enabled us to increase the dividend by 5.7% to ZAR 2.70 per share. At a group level, the shift in revenue mix is clear. Data-led revenues are growing strongly, while legacy revenues continue to decline, which is the intentional migration away from revenues -- let me now touch on our growth engines. Mobile continues to lead performance, which recorded the 14th consecutive quarter of market-leading service revenue growth. It reached a milestone by reaching over 25 million subscribers with strong prepaid growth at 10.3% on the service revenue side. The ARPU of the prepaid segment was stable at ZAR 6. Mobile data revenue reached 17.7 billion supported by 18.5% of data traffic growth. Moving to Openserve. It has reached an inflection point we are seeing broad-based growth with growth across enterprise, broadband and clear services showing a good growth. Overall revenue for the business increased by 2.3% with site revenue increasing and EBITDA margin expanding to 2.8%. This cremains the focus earlier the market environment remains challenging with even an EBITDA under pressure. However, we are taking decisive action, improving execution, tightening cost discipline and repositioning towards higher-margin digital services. We have to conclude with some key highlights from the financial performance. Cost-to-income ratio improved to 3% almost 70% variable. This was driven by the structural cost efficiencies with our in the year. Working capital optimization is a continued focus, and we are comfortable with its management -- the dividend payout has increased with a higher dividend decade or 5% of free cash flow. We are maintaining our medium-term guidance, and we'll continue to balance growth investments with cost discipline. I will now hand over back to the operator for the Q&A session.

[Operator Instructions] Our first question comes from Preshendran Adelia of 361.

Thank you, operator. And congratulations on the results Telcom team. I just got 2 questions to start off with. First, can you give us a sense of how much of revenue still comes from your copper and approximately what margin does that generate? I know in the morning call, amid say that it was it was mainly government contracts that were still on legacy copper. I just want to know how much of an impact does that still have in your business? . And then second question is more just wonder what levers are you looking to pull to drive growth there? I mean, previously, you spoke about scaling back on hardware sales because it was low margin and quite chunky. But if I look at your numbers, that's ramped up quite a bit in the second half. So I just want to know if you're going back on that strategy or some more color on what you plan to do for that business. I'm just pasting to figure out how what are the strategies you're putting to actually get that out of the red thanks very much [indiscernible] you want to ask another question, Sami.

Right next question comes from Jon Bradley of Absa. .

Good afternoon, [indiscernible] thanks for the opportunity to ask questions, and congrats again on a great set of results. Just 3 questions from me, please. Firstly, on the selcaptive dividend, you mentioned this morning, the insurance business, I think, was overcapitalized allowing you to pay out a dividend. I just want to know, is this because of much higher profits in the last year? And should we be penciling in similar sort of numbers into our assumptions going forward? Or was this more of a one-off. Second 2 questions more on the mobile business. Just on the price increases on postpaid, I think those were implemented first of April. Can you tell us what the overall sort of price increase was and did you do any price adjustments on your prepaid book? And then the last question from me, please. The decline in mobile handset sales sort of accelerated into the second half as well as the last quarter. I was just wondering if you could give us a sense on how to think about this sort of run rate going forward? And related to those device sales how we should think about the handset receivable book sales in that context. Obviously, the base, I think, this year, you did about ZAR 1.2 billion. Given the decline in mobile handset sales, can you sort of keep this level above the EUR 1 billion round? Or does this naturally sort of slow alongside the slowing handset sales?

Thank you, Sean. Thank you. So let me go back to fresh. I think if we look at the total fixed line revenue mix, that's still less than the attention it's just under $3 billion is the total mix of the fixed line revenue that the Genlyvoice and the CPEs as a whole. I don't think we generally give color to the margin of that. Historically, we have the combination of both the voice revenue and the CPE. So about $3 billion that's left in the fish to your soon BCX, yes, what we did at is what the guys were doing, particularly on the devices is to look at the mix of the device that they were selling so what we push the guys more is to look for a higher value device ecosystem. And that's what you're seeing there in those device sales in BCX. So it's your higher device higher-margin device sales because also we do need to be selling devices to secure business. So when you're renewing or extending your contract, for instance, in Aptar part of that mix is also booming devices. So what we were pushing the guys from is whether we're doing one-off device sales, which were not attached to annuity contracts. So that's 1 of the levers that we're looking at in this. So we've not moved away to the strategy of move away from high-cost once-off device sales but where is the device sell, that's attached to renewing the contract and it's a high value, really covers that. So those isles are actually attached to IT solutions growth, and that's why you're seeing the true growing both in tender how have do the Trish. To Jono, postpaid increase was in line with inflation, I think it was about 5% of and we've seen that come through quite nicely. In terms of the decline in the prepaid handset sales, it's actually not in line as a result of lesser prices, but more in the mix of the devices that we were selling. So as we indicated, customers are choosing to go for lower. So not as many high-end high phones and Samsung S5 but a more low-end device ecosystem. So it's not that we've reduced the number of units but it's the value of the units that we sold. And we don't see that having a negative impact on the value of the book going forward. So I think that was the question he captive.

Yes. So John, if I can touch on the secant we've looked at the quality train and the cash that is sitting in the sarcastic over the years. So we may not necessarily repeat at the levels of 245 something we're monitoring at the end. The withdrawal may continue into the future, but maybe not at the levels of the 240 million it was just over capitalized in terms of the solvency requirements at this point in time. So it's something we'll continue to assess. And this, as I indicated, relates to the insurance in relation to the devices that we have. So not at the same level but we will monitor and ensure that we are adequately so that covered for solvency requirements and where there's an opportunity to then do that into the future.

There was a question on prepaid price increases from Joe? There were no prepaid price increases effected a very good, Jon, we can take, and I have no questions [indiscernible].

[Operator Instructions] The next set of questions comes from Jonathan Kennedy-Good of Christian Securities. .

Good afternoon, and thank you for the opportunity to ask questions. Two questions from me. The first 1 being around working capital, if I have this correct, it looks as though there's been a down payment of your accounts payable. Just to check that, that was related to the Google timing on the Google Fiber pair and whether that's unlikely to recur in the year ahead. if that was the case? And then secondly, a broader question. Obviously, we haven't had any restructuring of telecom for a while, which has obviously been quite welcome. Just trying to get a sense of your understanding of employee headcounts and fit for the business as we stand today? And what is the natural attrition rate that Telkom is experiencing at the moment, i.e. Could that be a source of savings going forward as people move on and retire.

We can take a question from another case.

Next question comes from Nadim Mohamed of SBG Securities..

Just 2 from my side. Firstly, in the results presentation, you mentioned increased CapEx allocation to IT modernization and platform transformation. And if I understood it correctly, that relates to your [indiscernible] strategy. I just want to try to understand what exactly the spend is being allocated to and how that will enhance the business overall? And then just secondly, on BCX, I would like to understand now that you've had a relook at the business and there's new management. Would I like to just understand how you see the long-term prospects for some of the equipment business? Do you still see this core to the BCX offering? And how does it integrate into your go-to-market.

Thank you for those. I'll start with restructuring. I think as we've always indicated, it will be part of our evolution as we go into technology. And with Telecom, as you said, we faced 2 interesting challenges. One, we do have a relatively older workforce. So yes, as we are retiring we also need to be ingesting Yandai new blood, particularly with focus on AI. So yes, as we do with tire, it doesn't mean that we will be saving costs because we will ingesting fresher blood, as we also go with newer technology and digitizing the ecosystem, where we find opportunities to reduce costs, we do so. I've also said that in ecosystems, particularly like in BCX, where we exit certain propositions where there is high staff requests. So staff, staff population. So for instance, areas like managed services, that's where you'll see quite large exits of people. But that will come in time. Then I will touch on before Logutalks to the downtimes of Google to the principals of the you asked on the IT spend. It is primarily focused in consumer on our BSS and OSS upgrade. And this is end to end. The first part is really on the overseas ecosystem. And then the subsequent layering in, which goes all the way to our various touch points, core centers, enabling our retail ecosystem as well. So it is quite a comprehensive project. going to run over the next 2 or 3 years. So you will see roughly around about that shape of investment enabling us to really digitize our customer service end-to-end and also integrating a 1 telco go-to-market proposition, both in Openserve and consumer to make sure that at the retail touch point and even we touch point that we can offer to customers, for example, the converged FMC type proposition. In BCX equipment, in terms of the long term, it is a war as answered earlier on depressed, it adds value to our customer proposition. So if it is in the purpose of, one, delivering high-value service to our customers. So we are moving away from short-term high-cost, low-margin equipment, but hardware that enables us to then sell our critical IT solutions in our customers, which, therefore, gives us the value. So if it's hardware, that's enabling cloud services and cyber securities, that would be the focus of the [indiscernible]. I hope our coverage ego. There was an issue on the.

On the working question Yes. So Jonathan, if you look at the working capital, I think it was already a discussion we had when we went through the H1 where the movement in the working capital was just over close to EUR 600 million. And what we did say was that there is an element of a timing buffers, but I can confirm that there is no Google impact in the 2026 financial year because in 2025, we had indicated that there was just over EUR 900 million in the accounts payable, but related in the related to the Google payment and I think that we said was it more in the less liability payments more than pounds payable. But if you look at the accounts payable impact it really is coming from the elements we highlighted in H1 where we said, if you look at the consumer business and the PCX business and the revenue activity we saw in quarter 4 you would have seen an uptick in revenue and the accounts payable with a 90-day journey that we normally take with our suppliers coming through in H1 of 2026. So it becomes a timing difference if there is cash to be paid to suppliers and that there was a combination of impact from both BCX and the consumer business largely impacting our payments to suppliers, but the Google impact was completed in 2025 with all the inflows and the outflows.

We can take the next set of questions. Jude?

[Operator Instructions] We have a follow-up question from Jon Bradley of Absa. .

Just 1 additional question. On the payment to other operators line in the first half at a sort of flat year-on-year. And in the second half, there's quite a sharp decline I think if I look at the numbers, about 11-or-so percent decline in the second half. I mean, is that the sort of run rate given the increased CapEx that you sort of rolled out in the latter half or the second half? I mean, is that the sort of run rate we should be thinking about going forward? Is this tied to that higher CapEx level? Or is there sort of some repricing elements as well coming through.

So we model the second half, I think I'd rather stick to the whole full year. So it is we've just concluded the new contracts. So it's a balance of the CapEx, a bit of the new contract coming in. So for your modeling purposes, I'd say, take the full year impact of that, which will give you a better flavor of what it would look like. So I think the best size of that would be to see where we land in the next spring period probably in H1, you get a better picture of what the new terms of conditions get like. But we have signed a new contract and a name is quite a is negotiated.

Thank you. We have a follow-up question from Preshendran Odayar of 361.

Just got a more nice bundle. So I've got another question. Just on the roaming cost and CapEx. I mean, there's always a question around Telecom Mobile's CapEx spend. I know there was a bit of a ramp-up in the last quarter on mobile CapEx. But can you give us a sense of how much network headroom you have in with your current spectrum stack. And then coupled with that, if you can just remind us on how much of your how much of your network revenue or traffic is on roaming. So basically, how much you rely on the other operators for that? It's kind of linked to [indiscernible] question as well. .

Sure, Brief we look at our headroom from a capacity perspective, the guys always keep between, I think, 30% to 40% of the headroom. We had various nodes. So you're talking of core the core always has between 30% to 40% headroom in there. So ran, I think it ranges across the board. So they certainly do have more than enough headroom. If you go down massive 9 with mean those various bills, I think they have more than ample. If you look at in terms of the roaming traffic, it is 2% of our data traffic in what is roaming.

One moment, I'm going to recalling back into the call.

Yes, thanks. They recall me.

Okay, okay. And does that conclude your questions?

Yes, perhaps it. That is it from me.

Ladies and gentlemen, with no further questions in the question queue. We have reached the end of the question-and-answer session. I will now hand back for closing remarks.

Excellent. Thank you very much for attending our call. I think as we said in our call, quality growth unlaunched the data led strategy is working. The infrastructure is unrivaled. The focus now is on execution with a particular focus on revenue and ensuring that BCX is about 1 building down the platform and ensuring that the portfolio mix will be delivered over time. Thank you for your attention, and thank you for your support to Telekom wishing you a quality evening ahead.

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