Sello Moloko
Chairperson
While the global economy rebounded from the worst effects of COVID-19, South Africa's economic rebuild has been slow and uncertain. Despite local headwinds, Telkom continued to execute its strategy steadily. While the competitive landscape is tough, growth opportunities still exist.
Even though the local economy recovered by 4.9%, the economy is still 1.7% smaller than before the pandemic. South Africa is being weighed down by rising unemployment, weak consumer spending and socio-political instability. In addition, the continued power supply interruptions are choking economic growth and having a profoundly negative impact on our customers and our business.
The civil unrest we witnessed in July 2021 has its roots in the inequality of our society. If this is not addressed, we can expect anger and lawlessness to rise up at any time. We require urgent structural reform to restore growth and alleviate our many socio-economic misfortunes.
Group revenue was down 1.1%, putting pressure on profitability and FCF. In addition, the enterprise environment has remained constrained, impacting revenues for BCX and our Small Business segment. Competition continues to intensify in the areas of mobile and fixed wireless access and fibre to the home (FTTH).
The Board periodically reviews the Group's Strategy to ensure its continued relevance in an operating environment that is increasingly complex and demanding. Our strategic investments in FY2022 included allocating capital to fibre rollouts to replace legacy copper networks. We focused on deploying our broadband strategy, including increasing minimum entry speeds for broadband. We are pleased to see growing customer demand for these services.
Some key achievements for FY2022 include the modest growth of mobile and a significant increase in fibre broadband customers. We added MTN as a second roaming partner in addition to Vodacom. This provides increased flexibility and broadens our coverage footprint. We also acquired additional spectrum.
We play a leading role in South Africa's digital revolution. We are present in our customers' lives through their work, online education and entertainment. This positions us for long-term sustainability.
Telkom's vision is to lead in the converged ICT market through deep and credible relationships and a distinctive customer experience. In FY2022, the Board's key focus areas supported the Group's Strategy, while ensuring appropriate risk management to protect the Group's long-term sustainability and value creation. These focus areas will remain pertinent for FY2023.
Pursuing our Value Unlock Programme
In September 2021, we communicated our intention to unbundle and list Swiftnet on the JSE by the end of our financial year. The listing would unlock value for shareholders, allowing Telkom the flexibility to rebase our balance sheet and reinvest in our business.
In preparation for the listing, Swiftnet approved a Swiftnet MOI and governance prescripts to support the entity.
In March 2022, the Board resolved to postpone the listing based on global events, specifically the conflict in Ukraine, and the equity market conditions.
Telkom is trading at a deep discount to its intrinsic value. Therefore, we are committed to realising the Value Unlock Programme. The Board will provide further updates on the proposed Swiftnet listing and how we plan to drive maximum shareholder value.
Approving the ESG Strategy
As highlighted in the FY2021 report, ESG practices and disclosure are becoming increasingly important to investors. While Telkom has a proud legacy of good corporate citizenship, we recognised that we needed a holistic strategy to formalise our approach to each aspect of ESG. In March 2022, the Board approved the first ESG Strategy and implementation roadmap. This strategy encapsulates our goal of providing ICT solutions that create sustainable economic, environmental and social value.
The strategy has six priority themes with defined goals and tangible initiatives. It is gratifying to see how many initiatives are already in place to support this strategy. Notably, the strategy also commits Telkom to being carbon neutral by 2035 and net zero by 2040. The ESG Strategy is discussed in our strategy review.
The Risk Committee approved the amended risk appetite statements to address the risks related to ESG and create value for shareholders. Refer to the risk report in engaging with our stakeholders.
Engaging the regulator on spectrum
In the recently concluded spectrum auction, Telkom was able to acquire much-needed sub 1 GHz spectrum in the 800 MHz band and additional spectrum for 5G in the 3500 MHz band, notwithstanding the unfavourable auction rules.
This was preceded by Telkom's court challenge where it aimed to address competition concerns in the mobile market. In order to deal with Telkom's concerns, ICASA undertook to license, by March 2023, the available 800 MHz spectrum, as well as other available IMT bands, by applying pro-competitive measures.
Customer centricity
Ensuring that we provide an excellent customer experience continues to receive Board attention. We have engaged management extensively on measures to embed better service practices throughout the Group.
This focused on pioneering digital solutions that assist customers to operate more responsibly, broadening their access to affordable and inclusive digital connectivity, and promoting fair and ethical customer practices. While we made much progress, there are various activities in progress to enhance the customer experience.
Succession planning
The Board focused on finding the right skills to complement the existing Board profile and considered Executive Management succession. Consequently, the Board appointed Serame Taukobong as GCEO.
With some Board Members set to retire, finding suitable replacements was a priority for the Board and Nominations Committee. We will continue to monitor Board diversity and the tenure and independence of our Board Members. We remain confident that we have the right skills and experience to fulfil our strategic and governance mandate.
Board skills
In the past, Telkom held numerous roadshows to explain our governance approach and priorities, while also obtaining valuable investor feedback. We noted investors' concerns about a perceived lack of telecommunications experience on the Board, and their desire to see more evidence of ESG practices. Our focus is still on recruiting new Directors with telecommunications, disruptory and ESG-related skills in support of the Telkom of the future.
Supporting an ethical culture
In 2021, we strengthened our ethical culture by appointing our Group Company Secretary as the Group Ethics Officer. She will focus on continuous ethics awareness initiatives, embedding a Group-wide ethical culture. She will also oversee various initiatives in support of the ethical behaviour of employees and suppliers with the support of the business unit Ethics Champions. Read more about our ethical culture in managing our business with integrity.
In January 2022, Telkom received notice that the Special Investigating Unit (SIU) would launch an investigation into contracting processes in respect of telex and advisory services, and alleged maladministration in the disposals of iWayAfrica, Africa Online Mauritius and Multi-Links Telecommunications. Some of these matters date back to 2006. We are engaging with the SIU on the investigation, including clarity on the ambit of its authority, with a view to bringing the matter to a speedy resolution.
In July 2021, we bade farewell to Alphonzo Samuels who resigned as a Non-executive Director. We thank Alphonzo for his contribution to Telkom during his tenure as the CEO of Openserve. That same month, we appointed Olufunke Ighodaro and Ethel Matenge-Sebesho as new Board Members. Olufunke Ighodaro is a commercially astute and experienced business leader, and brings extensive leadership experience across several business disciplines. Ethel is a seasoned Director with many years of experience in leadership positions.
Four Non-executive Directors will be stepping down at the next AGM; with three Non-executive (namely Kholeka Mzondeki, Fagmeedah Peterson-Cook and Navin Kapila) retiring by rotation and will not be available for re-election. Mr Rex Tomlinson has decided to step down. The Board appointed five new Non-executive Directors; Brian Kennedy, Mteto Nyati, Ipeleng Selele and Prudence Lebina (all appointments will be effective 15 July 2022) and Sung Yoon (appointed 1 May 2022). Appointments will be confirmed at the annual general meeting (AGM) taking place on 24 August 2022. Refer to annexure to the notice of annual general meeting for further details on the Directors' CVs.
Telkom’s leadership transition was dealt with in an orderly and professional manner, as befits the calibre of the two gentlemen involved.
This year we said farewell to Sipho Maseko, our outgoing GCEO, and welcomed Serame Taukobong as our new GCEO.
Sipho joined Telkom in April 2013 and was instrumental in reshaping and streamlining the business to compete more effectively in a liberalised telecommunications market. He had an immeasurable impact and placed Telkom on a firm footing. Sipho remained a Telkom employee until June 2022 and supported Serame and the Board in an advisory capacity. On behalf of the Board, I thank Sipho for his commitment to a smooth leadership transition and his phenomenal tenure at Telkom.
Serame is a worthy successor. Our recruitment process included an intensive talent assessment both within and outside the business. Serame, one of South Africa’s most respected telecommunications Executives, was the logical choice for the position. He joined Telkom as CEO for Telkom Consumer in 2018. Under his leadership, the growth of that business unit was nothing short of remarkable. The customer base grew three-fold to 15 million while its revenue almost doubled to R20 billion within three years. Serame steps into his new role at a challenging time, and at an inflection point in the South African telecommunications industry.
The health and wellbeing of employees are top priorities. As far as possible, we currently allowed employees to work from home and supported them through various wellness programmes. We continue to encourage our employees to get vaccinated. I am pleased to report that our employee relations are strong, with high levels of trust and engagement. I thank all employees for their resilience and steadfastness in supporting our vision.
At the 2021 AGM, the remuneration implementation report resolution failed to meet the required 75% threshold as recommended by King IV.
The Board and Remuneration Committee engaged with shareholders on the resolutions prior to the AGM. Their concerns regarding remuneration were around:
The Board believes that the right remuneration decisions were made, but that our disclosures regarding the rationale behind our decisions could be improved. More detail regarding shareholder concerns and our response is in the remuneration report.
This year has been difficult for both Telkom and the country. We have lost many wonderful colleagues to COVID-19, and this loss is felt within the business. I extend my deepest condolences to our employees who are mourning loved ones and colleagues.
On behalf of the Board, I acknowledge our Group Exco Members for their extended commitment during a challenging year. We also thank our customers for their loyalty, and our service providers for supporting our operational activities.
Finally, I thank my fellow Board Members for their leadership, dedication and expertise in ensuring that the Board and its Committees fulfil their mandates and enable Telkom to connect our customers to better lives.
Sello Moloko
Chairperson