How our leadership supports value creation: an interview with the Chairperson

Telkom's improved operational results have reassured our stakeholders that the Group is making good progress in executing on its strategy. We want to continue building on that trust and delivering on our promises.

You assumed the role of Chairperson in April 2023. What are your reflections as you conclude your first year?

As I reflect on the year, I am filled with admiration for Telkom's profound impact on South Africa. From enabling the operation of most ATMs in the country to providing crucial telecommunications and connectivity in hospitals and schools, Telkom has truly made a difference. We still have a long way to go, but I am confident that we will continue to seamlessly connect our customers to a better life and contribute to South Africa's economic growth and development.

I am pleased that our performance has significantly improved this year, albeit far from where it should be. Our operational performance and financial results have improved all round. Group revenue, operating profits and earnings grew pleasingly as a result. Our net debt to EBITDA leverage ratio improved and we also achieved positive free cash flow from a negative position in the prior year. As a Board, we are encouraged by this improved cash‑generation trajectory. Lifting our financial performance is a key focus as we strive to be able to return value to shareholders through dividends once again.

I appreciate the thorough onboarding process that set me up to understand the Group, its challenges, and its many opportunities. This included direct engagements with employees and shareholders.

I appreciate our employees' commitment and the confidence our shareholders have that Telkom will realise its ambitions.

How have the global downside risks impacted Telkom in FY2024?

Globally, economic growth is projected to slow to 2.4% in 2024 while central banks grapple to keep inflation rates contained¹. A stagnant global economy and continued geopolitical tensions pose risks to business growth and raise concerns about commodity prices, which subsequently impact consumers' pockets.

The domestic economy is projected to grow at an average of 1.4% over the next three years, weighed down in part by loadshedding. High unemployment, persistent inflation and high interest rates also contribute to the decline in consumer discretionary spending. We see this play out in customers' shrinking wallets, which is why customer service and innovation on our product offering remains critical, as it supports our competitiveness in the market.

How is Telkom progressing with its Value Unlock Strategy?

The Board approved the disposal of Telkom's masts and towers business housed in Swiftnet. We decided not to list Swiftnet as the market has changed, with significant consolidation allowing these companies to leverage their economies of scale. While Swiftnet supports Telkom Mobile and Openserve, we are comfortable that these business units can remain competitive and profitable without Telkom owning masts and towers. The decision to dispose of Swiftnet was subsequently approved by shareholders at the general meeting in May 2024.

We seek to solidify Telkom's position as an infrastructure company (InfraCo) and explore opportunities that support that. This will largely be driven by the capabilities housed under Openserve, ensuring that we monetise the >170 000 kilometres of fibre that are already deployed.

The proceeds from the Swiftnet disposal will enable us to reduce debt levels and the associated finance costs, and release capex to strengthen our position as an InfraCo.

¹ Global Economic Prospects – January 2024 (worldbank.org).

Mvuleni Geoffrey Qhena

How does the Board ensure that Telkom has suitable skills within the Board, its Committees and management, to ensure robust oversight over its strategy progress and sustainability?

We have a diverse Board in terms of race, gender and skills. We considered Non-executive Director succession planning in line with the Board skills matrix, highlighting the required skills and replenishing the vacancies as they occur. We have ensured that we have the right skills and talent, specifically technical expertise, commercial experience, regulatory expertise and cybersecurity skills capabilities.

We approved the appointment of Nonkululeko Dlamini as Group CFO and Executive Director effective 1 December 2023. She is a qualified chartered accountant with extensive experience. She took over from Dirk Reyneke, who assumed the role of Chief Capital Projects Officer. His role includes overseeing the improvement of the Group‑wide return on invested capital.

The Board established a Technology Committee in April 2024 to support it with overseeing technology and innovation strategies, plans, and operations related to information security, cybersecurity, data privacy, and third-party technology strategies. Headed by Professor Herman Singh, an Independent Non-executive Director, the Committee will position the Board to respond appropriately to changes in the sector.

Last year, the Board prioritised succession planning. Why did the Board continue to focus on employees and succession planning?

Telkom's 9 877 employees have a wealth of knowledge and expertise. They believe in Telkom's future and the role telecommunications and connectivity play in communities. We thank our employees for believing in the Group and weathering the tough times with us.

A section 189 restructuring was necessary last year to ensure Telkom's future sustainability, and although we provided support to affected employees, these processes undermined the Group's morale. Therefore, we focused on ensuring stability for employees. The Board also accelerated the work of ensuring that Telkom creates an environment to attract, retain, and develop a diverse pool of high-calibre professionals to support our strategic objectives. The Remuneration Committee also considered incentives that can be introduced to help us retain talent.

The Board supported executive management in reviewing succession pipelines and related action plans. We oversaw the Group CEO's (GCEO) revised executive structure and supported the appointment of Sello Makau as Group Chief Digital Officer to drive our digital capabilities and ambitions. Creating this role will allow the right focus to be placed on technology as a catalyst for achieving our strategy.

The Board approved management's initiative to break down silos among Telkom's business units. What benefits does this offer the Group?

The Board has supported the GCEO and his team in their goal to present Telkom as one organisation. Our journey to separate the Group into independently operated entities has benefited Telkom and made us more competitive in many respects. However, it has also resulted in missed opportunities for leveraging the power and synergies of OneTelkom.

The biggest benefit will be the ability to manage costs better. When we engage and plan as one Group, we can unlock value and leverage our buying power. In addition, we can enhance our competitiveness by presenting customers with holistic service offerings and products and harnessing the skills and capabilities across our business units.

We acknowledge the GCEO and his team for decisive leadership and commitment to moving Telkom in the right direction.

What ESG matters did the Board review this year?

We focused on improving energy, waste and water management. We emphasised renewable and energy-efficient practices, which led to a 9% reduction in emissions. This included decreasing the use of diesel, increasing the use of solar and reducing reliance on Eskom's power supply. We have also noted the need to improve our data centres' green attributes.

The Group continued to invest in education and youth development initiatives through the Telkom Foundation to support enterprise development through our FutureMakers programme.

What is Telkom's position regarding the Special Investigating Unit's legal matter?

Our engagements continue regarding the Special Investigating Unit's (SIU) investigation on various matters, including contracting for network and advisory services and the disposal of former Telkom subsidiaries. In July 2023, Telkom won its court case to have the investigation halted before the SIU appealed the ruling. The President of the Republic of South Africa and the SIU were granted leave to appeal the judgment on 11 December 2023, and the appeal is currently pending before the Supreme Court of Appeal.

We await the decisions of the Court and remain committed to good governance and anti-corruption efforts and respect the application for leave to appeal by the President and the SIU. We hope for a speedy resolution of this matter.

In conclusion

Thank you to all the stakeholders for your continued support and faith in a stronger and sustainable Telkom.

In the coming year, the Board will oversee performance of the Company in the following areas:

Monitoring financial performance with special focus on improving generation of free cash flow, so that the Company can resume paying dividends
Tracking the growth of the next-generation revenue and improving profitability driven largely by our data-led strategy
Overseeing the conclusion of the Swiftnet disposal and approving the next phases of the value unlock strategy in the future
Ensure the transformation and reorganising of the Telkom Group as South Africa's leading InfraCo.

Thank you to my fellow Board members for your commitment and support. During the year we bid farewell to two Non-executive Directors, Mteto Nyati and Naidene Ford-Hoon. We wished them well in their endeavours; I am grateful for their contribution. I would also like to thank the employees for their continued efforts and dedication to the Company.

We are looking forward to further engagement with the stakeholders as we navigate the challenges and exciting market opportunities that lie ahead.

Mvuleni Geoffrey Qhena
Chairperson