Welcome to the Telkom Pre-Close Conference Call. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star and then zero. Please note that this call is being recorded. I would now like to turn the conference over to Serame Taukobong. Please go ahead. Thank you, Eileen. Good morning, everyone, and welcome to our pre-close call. On the call is our Group CFO, Dirk Reyneke, and the Investor Relations team. We are hosting this call to update you on trends in the second quarter and give you a high-level view on group performance for five months of the 2024 fiscal year, ended on the 31st of August 2023. This call will also give you an opportunity to engage with us as we enter our close period until the release of our results on or about the 21st of November 2023. The call will last about 10 minutes, and then we'll go into Q&A. So let me start with the operating environment. Performance continues to be impacted by economic conditions, load shedding, and ongoing migration to NGN technology. The economy, as you're all aware, remains challenged, characterized by ongoing inflationary pressure on the cost of living for consumers, a robust competitive landscape, marginal economic growth, plus ongoing rolling power cuts. Load shedding has remained a recurring feature, unfortunately, for all five months of this fiscal. To date, South Africa has experienced 153 days of load shedding compared to 71 days in the prior comparable period. To our end, we are focused on what is within our control by configuring our key infrastructure sites to reduce the use of diesel by installing batteries and introducing solar energy as a primary backup form of energy, as well as upgrading backup batteries to lithium batteries in order to increase the capacity, time to recharge, and longevity. This work is ongoing and will mitigate the cost of ensuring network availability during power cuts, both for our fixed and mobile networks. As expected and communicated previously, overall performance continued to be impacted by ongoing migration to NGN, Next Generation Network, as legacy and fixed-line voice revenues reduce for the next 18-24 months. Despite this, we continue to see positive trends into Q2 of 2024 at all revenue and EBITDA levels. There is great focus on driving growth on the top line across all businesses, as well as the cost reduction initiatives to offset the inflationary cost pressures and the added cost of load shedding. Dirk will share more on group performance trends for the five months. In terms of continuing to realize value for shareholders, we continue exploring the best options to unlock value for our shareholders, underpinned by the belief that Telkom's share price does not reflect its intrinsic value. Talks are ongoing for the Swiftnet, the mast and tower business. We will update the market on where we are with this process and other initiatives with the release of our interim results in November. Just to update you on the recent board appointment of a Group Chief Financial Officer, on the past Friday, we announced the board appointment of our incoming Group CFO, Ms. Nonkululeko Dlamini, joining Telkom as Executive Director effective 1st December 2023. The board was determined to ensure that we are cognizant of our agenda and transformation and equity requirements. Ms. Dlamini is a highly qualified CA with diverse expertise in large and complex organizations, and her recruitment came after many months of searching and examining a highly skilled pool of candidates. Her recruitment was also confirmed by a rigorous process involving our RemCo and NomCo, whom they finally made the recommendation to the main board. Her skills in capital projects, capital raising, cost management, and strategy alignment are a strong fit for the executive team, which will lead Telkom's new strategic direction as an InfraCo. Our current Group CFO, Dirk Reyneke, remains available to support Ms. Dlamini in her new role and will assume the role of Chief Capital Projects Officer. His in-depth knowledge of all the Telkom business units positions him well for the strategic role, as well as to share his expertise and experience with his successor. I'll now hand over to Dirk to take us through the trends we are seeing in the second quarter. Dirk, over to you. Thank you, Serame, and good morning to everybody on the call. I got a list last night of everybody registered last night. I'm not sure if you're all on the call now that morning. For this call, I will provide you with a consolidated view of the group financial performance. Individual business unit performance will only be covered in detail with the release of our 2024 interim results. As we are in the close period, we'll stick to trends. I'm not going to quote numbers, percentages, etc. Suffice to say, we've seen continued positive momentum from the first quarter for the five months ended to August. Group revenue is trending up similarly for quarter two to the end of August year-on-year, within guidance provided despite the ongoing legacy revenue declines that Serame referred to. If I look at the costs, we're pleased that our cost reduction initiatives are bearing fruit, partially offsetting the impact of the inflationary cost increases and load shedding. Employee costs are trending downwards year-on-year, as anticipated. As a result, the total expense increases are well under control. We're seeing that the consumers remain under strain as high interest rates and record high fuel prices continue to eat into their disposable income. As a result of such economic pressures, our ECL provisions have increased year-on-year, but we are adequately covered. Despite these challenges, the group's making good progress and remains committed to improving operational profitability in the medium term. Even our margins are trending upwards from quarter one due to revenue growth and cost reduction initiatives. With improving profitability and excluding the restructuring cost provided for in the prior year, the ZAR 1 billion that I've referred to before, we have also seen a positive trend in free cash flow since the end of full year 2023 and also since quarter one, assisted by our focus on working capital efficiency during the period. Given the current debt levels, finance costs have trended upwards as a result of higher interest rates year on year. As you all know, lending rates are at a 14-year high, with the SARB repo rate having increased by 400 basis points since the beginning of full year 2023, 200 basis points from 2023, and by 50 basis points from quarter one. We continue to invest in our growth areas of our business, and for the first half, our capital expenditure as a percentage of revenue is expected to be slightly below the lower end of guidance, but we are still comfortable that we are investing adequately. That concludes the update on the group performance, and I will now hand over to the operator for any questions and answers, and thereafter, Serame will conclude. Thanks. Thank you. Ladies and gentlemen, if anyone would like to ask a question, you're welcome to press star and then one on your touch-tone phone or on the keypad on your screen. If you however wish to withdraw your question, you may press star and then two to remove yourself from the question queue. Once again, if you would like to ask a question, you may press star and then one. The first question we have is from Preshendran Odayar of Nedbank CIB. Please go ahead. Morning, everyone. Thanks, Operator, and thanks, Serame and Dirk, for having us this morning. I just want to clarify on the free cash flow question. You're saying outside of the employee restructuring costs, so that's probably gone through in this period, this first half, it's trending upwards. Does that include or exclude the spectrum payment, and has that been done? And then coupled with that, is there any other, should I say, negative surprises that we should expect on free cash flow outside of the two known ones, which are spectrum payment and employee restructuring cost payments? Thanks. No, Prash, you'll recall that I said, guys, we're starting off -ZAR 2 billion, ZAR 900 million spectrum and ZAR 1.1 billion restructuring. The restructuring cost free cash flow has gone through. That process is completed. The spectrum cash flow will only be in the second half of the year. And again, that's in our plans and in our projections. But so for half one, we've only had the restructuring cost flowing out. I'm not aware of any other surprises. I think in terms of free cash flow from a group perspective, from a central treasury perspective, the initiatives we set out to do, I'm referring to handset sales, those sort of things, working capital value unlock, I think there we've stuck to what we said we will do, and it's starting to bear fruit. So that, with the increased profitability, I'm seeing from an operating cash flow perspective, very positive trends. Thanks. Thanks, Dirk. I'll get back in the queue. Thanks. The next question we have is from Nadim Mohamed of SBG Securities. Please go ahead. Good morning, everyone. Just a couple from me. Just following on from Prash's question, I just wanted to ask about their account receivables and contract assets, and just if you could give us any color on the shape of that. I know you can't give us exact numbers, but any sort of guidance on how that's trending relative to the guidance and expectations earlier this year. And then just if you could give us a sense of how the mobile industry is currently trading. I mean, we see, for example, Capitec announcing 1.3 million customers recently. Mobile voice is still sliding since Q1, and then just how your Mo'Nice offerings and Airtime Advance offerings are trending in market. Thank you. Very cool. Dirk, you can take the first one. I'll take the second too. Dirk, have you vanished? I think I might have gone away. I'm here. I'm here. Can you hear me? Yeah, I can hear you. Okay. Sorry. So Nadim, yeah, I think I'll take the working capital. And Serame can deal with the second question. But in terms of accounts receivable, I'm not sure what guidance you're referring to, but we have put specific focus into our working capital investment releases. As I say, in the, let's call it the wholesale market in OpenServe, no surprises. I think there our debt is there as well under control, and it's low volume, high value, and that's well managed. I think in the consumer space, as Serame has referred to, the pressure that the consumers are under, but we're well covered. The ECL increase is probably more relating to the uptick in the revenue. I think in the corporate space, your accounts in BCX, you're all aware of, and I think I announced that in the quarter results, the Post Office business rescue and then the unintentional impact that had on Postbank. So there are, I want to call it, four or five large accounts that we're managing in intensive care. There's no new ones there. There's no surprises there, but there are big numbers at play there. So from a debtor's perspective, I think really we're putting a lot of effort in unwinding that, and also with our collection agents, how do we recover some of the older book? We call it post write-off recoveries, which we've written off completely, but in terms of IFRS, again, you bring the book and the provision back on balance sheet. And we're saying, what incentives are we giving our collection agents to recover more of that and not just run NAEDOs through the bank's deduction systems? Forward-looking, we have increased our scoring metrics in terms of credit scoring. So we are comfortable that given the higher credit risk, that our forward-looking business is more conservative and that we can manage that properly. Thanks, Serame. Thanks, Dirk. Nadim, I think on mobile, we certainly are seeing positive trends, which continue, actually driven by a bigger focus on our active-based management supported by Mo'Nice and the Airtime Advance. So the team has been working quite hard in increasing the uptake of Mo'Nice and focusing on driving higher levels of retention as we also balance our conversion. So mobile trends continuing in a positive direction, Nadim. Excellent. Just to expand on that, are you seeing any, let's say, pressure from the likes of Capitec or some of these new plans we see from MTN? Any sort of resonance of those in the market right now? Well, I think the new plans certainly from MTN actually respond to some of our plans, so it is expected. I don't think we need to do anything more drastic than that. MVNO space, I think, is an exciting space. I'm seeing more dilution between the MVNOs, less so significant impact on our side. Excellent. Thank you so much. Appreciate that. Cool. The next question we have is from Jonathan Bradley of Absa. Please go ahead. Morning, Serame and Dirk, and thanks for the call. Just a question on asset realizations, specifically the OpenServe deal or potential for an OpenServe deal. Is this still on the cards given the Competition Commission recommendations on the Vodacom CIVH deal, or does this change your plans at all? Excellent. I'll take that one. I think obviously the Competition Commission is a very interesting posture. I think the structure of an OpenServe deal at this point in time, we've not settled on a particular partner in this regard. Secondly, I think given the recent announcements that I made to the market of our strategic shift towards an InfraCo, we are in the process of reworking what that shape will look like for a far more holistic OpenServe. So at this point in time, we obviously, as a market, await eagerly to see what the Competition Commission landing is because it does have obviously an impact overall to the industry, but it certainly has not dampened our strategic direction. Ours is to really shape up and say how we really gear up OpenServe as an InfraCo or our organization as an InfraCo, which will include OpenServe, obviously, and get that ready for market. I hope that covers you, Jonah. Yeah. Thank you very much. Excellent. The next question we have is a follow-up from Preshendran Odayar of Nedbank CIB. Please go ahead. Hi guys, me again. Just, Dirk, if I can ask some a little bit more probing questions for each of the businesses, what can we expect just compared to quarter one in terms of revenue and margins for the mobile business, BCX, OpenServe, and the like? I know mobile had quite a strong showing in the first quarter, good run rate, and then some of the other businesses went a bit backwards. So just if you can give us some color on what to expect in the second quarter for the first half. And then coupled with that, can you just give us what your network uptime is under stage six load shedding, the mobile network, not the. I know the OpenServe is pretty robust, but just want to know on that. It seems like MTN, they're throwing a lot of money to actually get that up, and they've done quite a lot going from what competitors say was around 80% to now at 91% on stage six. So just if you can give us some color on that, that's the two from me. Thanks. Yeah, Preshendran, I'll take again the first one. Serame can talk to the network uptime. I think in terms of different business units, the trend that you saw in quarter one continued. So if I look at the four, OpenServe's in the nutty business, you don't see big peaks and valleys there. Once you've got a wholesale customer, you probably retain that wholesale customer. OpenServe, you've still got the biggest legacy overhang. So the legacy trend continues and the next generation growth continues. And on a net basis, as I say, we've reached that inflection point before. I think in terms of the consumer mobile business, clearly on the mobile side, the trend of quarter one continues, specifically on the prepaid recharger side, service revenue, etc. They've still got a small legacy overhang on the fixed side, on the medium business, but the trend that we saw in quarter one continues. Jaro is solid and stable. The SwiftNet business, it's a small contributor, but that trend is worth all without a transaction. That trend continues. I think there's no concerns there. And then BCX is the big kicker. Clearly, they were under pressure in quarter one. In terms of revenue growth, still a bit of pressure. And then for them on the cost side, the ECLs, the bad debt provisioning that played a role in this quarter. So I think the trends of quarter one probably continuing and on a blended basis on a very positive manner. Yeah, I think on the load shedding, am I still on? Yes. Load shedding, stage six, it's two different states, of course. If we look at stage six during peak hours, and we haven't had many of those, it ranges from 87 to about 90-odd. That's at peak. Off-peak, we're above 90. So when stage six happens at about 2:00 A.M., 4:00 A.M. in the morning. Generally, because we live in stage two, stage three, if I look at the latest stats I've just received this morning, we are sitting at an average of 93.98% availability. So as of last night, I think we were stage two. Our availability was 93.98%. Thanks. Thanks, Serame. Thanks, Dirk. The next question we have is from Myron Rajaratnam of Macquarie. Please go ahead. Good morning, guys, and thanks for the opportunity. Two questions on the recent board announcements. The first one is you used the word extensive search. So can you tell us how long the board was looking for a candidate? And secondly, because the word extensive doesn't mean much, you can be more precise than that. And the second part is what triggered the board to do an extensive search? Thank you. No problem. I can take that one. Thank you, Myron. First, I'd like to dispel the horrible rumors that this process took place in 24 hours. As you know, this is a listed entity. As we had indicated in Dirk's contract extension, part of the process was to find then a suitable candidate. This process kickstarted late last year, actually, about November, going through the process. The candidate in question was selected and approached finally, I think, in February 2023, where she registered her interest in the role. She then went through the process amongst other processes, finally with a shortlist being interviewed by the audit committee on or about the 1st of June, and the offer was officially presented in the first week of August. So it started late last year with obviously quite a huge panel and pool. Like I said, it involved our NomCo and RemCo, in particular reference to Ms. Dlamini. The first engagement with the board in the shortlist was on the 1st of June. I hope that covers you, Myron. Thank you so much, Serame. Very kind. The next question we have is from Madison of HSBC. Please go ahead. Hi, can you hear me okay? Yes, we can. Yeah, we can hear you. Thank you. Thanks for taking my questions. So the question is actually just trying to get an update on the tower sale process or other whatever monetization options you were looking at. So is there any update on that? And also on the OpenServe part, do we have a tentative timeline by which we should expect a concrete step forward? Thank you. Excellent. I'll take that. On the tower sales, I think the update is still the same as we spoke to you. We are engaging with two final bidders. Each bidder obviously has their own nuances, and the teams are pretty much in the final stretches of dotting the T's and answering those questions. We certainly hope to give far better clarity when we speak to you on the 21st. On OpenServe, there is no timeline set yet. So we're not in a position to give a picture of a timeline at this point in time. Okay, thank you. If I can ask about your Capex plans, given the state of load shedding in the country, but also looking at the strain on your own financials generally, and more and more roaming we are seeing on, let's say, the other two operators' networks. So, I mean, should we see a change in the Capex plans for telecom in general? I mean, do you think Capex should basically come down, or do you actually need to step up so that you could roam less? I mean, how are you thinking about this issue? So let me answer the CapEx, particularly on mobile, in two particular questions. So remember last year, Dirk was kind enough to allocate a significant amount of CapEx to the mobile team, especially when we saw the onset of load shedding coming quite strongly, so both from a CapEx and an OpEx perspective, which was working ahead of the trend. Secondly, in terms of roaming, what the mobile team is doing is almost like a smart allocation of CapEx as a result of roaming. If you may recall, the roaming agreements that we have is above the traditional normal roaming. We also have an ability to say where we're seeing high traffic coming through, we can then put our network equipment on those sites, which means that we spend our CapEx far more pincered and not obviously wide. The benefit of having to roam on both networks, in fact, as we speak, the teams are in the throngs of doing the renegotiations with both parties, means that even though we've seen a significant increase in traffic, the actual cost of roaming has come down from where we initially started, I think, about 19%. We're wavering between 9% and 10% now as a result of those negotiations. So the team will balance between using that roaming, especially your deep passive sharing agreements, which then allow you to be more smarter with your Capex. So the Capex curve for mobile will not be in this usual quantum that we've seen because we have done some upfront spending on that, both for power and obviously two years ago for spectrum. I hope that covers you, Swan. Yes. But overall Capex, which basically would also include the Capex on your fixed-line business as well. So, I mean, the total Capex numbers, right? Last year was about ZAR 7.something billion. And I'm just wondering whether that should fall to much lower levels, let's say sub ZAR 5 billion in the coming future. Let's talk CapEx intensity rather than absolute numbers. So I think we've got it around 16%-18% of revenue. I think I said a quarter ago that we will probably be at the lower end of the 16. And in my introduction, I said that we will be slightly below that. I think there are some cyclical issues in there. So for the full year, still the lower end of guidance. I'm comfortable that that's probably where we should end, lower end of guidance or slightly below. But in terms of efficiency, around the 16% is probably what one can look at more likely. Got it. Thank you very much. The next question we have is a follow-up from Nadim Mohamed of SBG Securities. Please go ahead. Hi, everyone. Just one more from me. I recall as a last resort, you were submitting a response to the ECA Amendment Bill that I think was currently under discussion by ICASA. Just like to get a sense, what is the latest on that bill, and then what is Telkom's current position on that? Thanks. I think we've submitted responses like everyone else. We've actually not heard much. There's been not much developments in this regard. I think we highlighted pretty much like other members of the industry some areas of the concerns that we had in regard to the bill. Despite the process that ICASA, I think, is looking at aggressively pushing, we certainly don't foresee that coming through, certainly in this financial year. So it's still early stages at this time. Got it. And are you able to share what the one or two main concerns were on that bill? Oh, gosh. It's a list of like 20. I'll get the team to summarize, and I think when we have things called like an issue, you highlight what the concerns we have, but it's quite a long list. Okay. No worries. Thank you so much. Cool. The next question we have is a follow-up from Preshendran Odayar of Nedbank. Please go ahead. Sorry, guys. Promise, this will be the last one. I'm seeing I'm not hogging the OpenServe lines over here. But yeah, I think Myron and Maddie asked similar questions to what I'm going to ask, but just some follow-up. So the tower sale process, you're only going to announce something by results date, it looks like. So nothing more immediate. That was my first question. Second question, I'm trying to say this. I'm just trying to get on your new CFO. What skill set were you looking for in particular, getting an ex-Transnet CFO to come run what is a relatively complex telco infrastructure business? Just want to know your thought process behind that. I know it was a board decision. I don't know if you can share some of those. Because, I mean, Telkom's not an easy business to model, to be honest. I suppose for Dirk, I mean, I'm surprised he's still got a lot of his hair with the years he's been looking at these numbers, both as an audit partner and as the CFO. So just some thoughts around that, if you can. Just yeah, thanks. Yeah. I think what's important is we kind of forget history. So if I take you back to when the former CFO, Tsholofelo Molefe, came into the organization, she came from Eskom. And incidentally, she was actually Nonku's. Had nothing to do with Nonku's appointment, but just the process. And remember that when Tsholo came in, she came in as deputy CFO for a year and then transitioned to group CFO. And the former CFO, Deon Fredericks, was still around. So the process we're following is nothing unique. It's similar to what we've done in the past. The key thing for us was obviously with the move to an InfraCo type structure, capital projects management, access to capital markets is something quite key. I think we are extremely fortunate that Dirk is still available for us to rightly, as you've said, help the new CFO manage this rather complex business. I mean, nobody knows this business better than Dirk. I think we're in a good position that we can transition somebody who brings in a good skill set, particularly on the capital project side, and still have Dirk to help show the ropes in understanding the complex animal that is Telkom. It was always the intention, like I said, from Dirk's appointment that we would find a suitable replacement for Dirk, and Dirk would be available to help transition that individual into the process. I hope I've answered you well there. You did indicate on towers. Like I said, it's at the wire. We are obviously constantly updating. It is driven from a board perspective through our ITC, our Investment and Transaction Committee. We do keep the board apprised of developments as we go. Yeah, we will indicate where we are when we next speak on the 21st of November. I hope I've covered you there. No, no. Perfect. Thanks, Serame. Just, yeah, don't worry. I wasn't going to apply for the CFO job. It would be on my level of expertise. Thanks. You've already got too little here, Preshendran. That's true. Very, very true. Very, very true, Dirk. The next question we have is a follow-up from Nadim Mohamed of SBG Securities. Please go ahead. Hi, everyone. I thought I'd be a bit like Prashendran and try and ask another question. I'm not sure how much you can say about this, but just on the Swiftnet negotiations going on right now, I mean, you don't have to go into the details of the discussions or anything. I'm sure you can't anyway. But are you able to share with us just what the sort of points of delay are? Is it something like, for example, securing certain B rights attached to the tower core? I mean, if you could give us at a high level, just the current themes that are potentially delaying the progress on the tower transaction. Nadim, can I really request respect? Guys, in terms of this call, we were warned by responses that it is a closed period. We are deliberately vague, but that's the one area where they said, "Please don't go into detail." So if we don't answer you directly, it's not that we don't want to. It has been a closed period. The Martin Tower transaction is at a very sensitive point. Serame was clear that we'll announce further in the results, half-year results. If we talk about this thing, that's the one area where we're probably bordering closely on price-sensitive information. So I'm going to get involved and ask my CEO not to discuss this transaction further. And if you cross with me about that, please give me a ring afterwards. But this is the one area where we're on dangerous grounds, whatever we discuss today. So please refrain from it. Thanks, everyone. Nadim, in my culture, we always listen to our elders, and my elder has spoken. Okay. No, no. Fully understand. Thank you. Ladies and gentlemen, just a final reminder. If you would like to ask a question, you're welcome to press star and then one. We will pause for a moment to see if we have any further questions. It seems we have no further questions on the line. I would like to hand back to Serame for any closing comments. Thank you, Madam. Thank you all for all your questions. As you've heard, we continue to focus on driving revenue growth in our businesses, mitigating cost pressures, and remain committed to pursuing opportunities to realize value for our shareholders. We will share more detail of how we're progressing on creating a telco of tomorrow positioned as InfraCo. Thank you for joining us in the call and your continued interest. The IR team is always ready to receive any further questions and queries. Our interim results are scheduled for release on or about Tuesday, the 21st of November, 2023. Thank you kindly. Have a good day, and we will speak soon. Thank you, everybody, and goodbye. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.