Telkom Integrated Annual Report 2020

Chairperson's report

Telkom’s group governance model supports value creation in the short, medium and long term, and ensures the board takes accountability and responsibility to direct, steer and monitor the group.

Key themes

The past year has been challenging and characterised by high levels of change and uncertainty. We have responded to our external environment and made difficult decisions to position Telkom for success in a dynamic market

The impact of COVID-19 and the national lockdown have dominated the news in a year where we were already facing macro-economic challenges, regulatory uncertainty, technology disruption and increasing competition.

Telecommunications is an essential service. The group has a duty to provide a stable network and ensure reliable connectivity into the marketplace.

Our number one priority is the health and safety of employees and we reconfigured how we do business during the lockdown period, with over 80% of our workforce working remotely. The group has taken a dynamic approach to the COVID-19 pandemic, which continues to disrupt every aspect of our lives and business operations. Refer to the Group Chief Executive Officer's (GCEO) report for more detail on our COVID-19 response.

The South African economy remains challenging with gross domestic product (GDP) growth contracting in the last two quarters of the year, increased government debt and Moody’s ratings downgrade to sub-investment grade status. These factors place consumers under great financial pressure, impacting their ICT spend. This could worsen as the impact of COVID-19 becomes clearer. Telkom’s own credit rating was also downgraded by Moody’s and Standard & Poor’s (S&P) due to the rating’s link to the sovereign rating.

We operate in a highly regulated environment, which has been dominated by engagement over the Independent Communications Authority of South Africa's (ICASA) proposed framework for the allocation of spectrum, and the Competition Commission’s Data Services Market Inquiry Report, which resulted in lower data costs.

Our industry remains highly competitive with a continuous stream of technology developments and disruptions to the industry.

The unfavourable economy and technology advances have driven a change in customer preferences to mobile, fibre and other lower-margin products and services. This contributed to the rapid decline in our high-margin fixed-voice business.

We need to retain the right people and have the right skills in place to support our strategic goals

Succession planning for executive directors and critical roles was assessed by the board and the nominations and remuneration committees respectively.

We are satisfied with the talent we have in place, and the respective interventions that we have implemented. We have assessed the group executive committee (exco), subsidiary and business unit leadership skills and implemented development plans and retention mechanisms to ensure they are engaged and committed to remaining within the employ of the group. There were several factors that were considered by the board in succession planning for senior executives. These included:

• Consideration of the state of the business
• The current shift in the telecommunications space
• The current restructuring of the group
• The outstanding implementation of strategic matters

We are committed to board diversity and ensuring the appropriate skills and experience on our board

Our board skills assessment identified the need for greater expertise in the areas of telecommunications, technology and market disruptors. To capacitate the board in these areas, training and upskilling members, we appointed Sibusiso Sibisi as an independent non-executive director with effect from 1 April 2019 to provide. Sibusiso is a leading expert in ICT, business-to-business intelligence skills and the fourth industrial revolution and he strengthened our knowledge base in these areas.

Keith Rayner was appointed as an independent non-executive director with effect from 15 July 2019, and he was elected as chairperson of the audit committee at the annual general meeting (AGM) on 27 August 2019. Keith is a seasoned director with deep technical knowledge of the JSE Listings Requirements and brings a wealth of corporate governance skills onto the board. Keith’s skills in corporate finance, accounting, auditing and mergers and acquisitions identified him as the perfect candidate to replace Graham Dempster, who resigned as the audit committee chairperson at the annual general meeting (AGM) in August 2019, and from the board on 30 November 2019.

On behalf of the board, I welcome Sibusiso and Keith and look forward to working with them. We wish Graham well for his future endeavours, and thank him for his counsel and dedication over his five-year tenure.

We monitor director tenure and conduct an independence test in appearance and judgement on long-standing directors to ensure we have an independent board. We conducted an independence test for Navin Kapila during the annual board evaluation process. The results indicated that the board is satisfied with his level of independence and objectivity, and it recommended that he be re-elected at the next AGM.

We have a recruitment plan to manage director rotation and engaged an executive search service provider to address our identified skills gaps. The recruitment approach considers the talent required by Telkom and our race and gender diversity. We target credible directors who best fulfil the required criteria.