Telkom SA SOC Limited Registration number 1991/005476/30 JSE share code: TKG JSE bond code: BITEL ISIN: ZAE000044897 ("Telkom" or the “Group”) Trading update for the quarter ended 30 June 2023 Q1 FY2024 SALIENT FEATURES • Group revenue up 3.8% to R10 668 million • Group EBITDA down 4.2% to R2 235 million • Telkom Mobile growth driven by value-compelling propositions o Mobile revenue up 5.2% to R5 448 million ▪ Mobile service revenue up 6.5% ▪ Mobile data revenue up 9.9% o Mobile data traffic and subscribers up 25.1% and 6.9% year-on-year (“y-o-y”) to 329 petabytes and 18.5 million subscribers, respectively o Mobile broadband customers up 8.9% to 11.7 million, comprising an increased 63.2% of active mobile customers • Openserve – fixed data new generation revenue growth sustained at 10.6% o Fixed data traffic up 13.3% to 512 petabytes o Sustained, leading FTTH connectivity rate of 46.5%, with number of homes connected up 24.2% • BCX revenue up 2.9% driven by IT business growth o IT business revenue up 17.5% to R2 068 million • Swiftnet commercialised at healthy margins o Revenue up 1.2% o Healthy EBITDA margin of 71.8% Telkom’s trading update for the quarter ended 30 June 2023 (“Q1 FY2024” or “the quarter”) demonstrates good performance by new generation network (“NGN”) offerings despite challenging economic conditions prevailing in South Africa. Group Chief Executive Officer – Serame Taukobong comment: Telkom has started the 2024 financial year with good momentum. Group performance was pleasing in the face of rolling power outages (load shedding), muted economic growth, continuing inflationary pressures on consumers and an intensely competitive landscape. Our value-driven and data-led strategy paid off as NGN revenues grew. Our subscriber bases continued to grow and with increased demand for connectivity we saw strong double-digit growth in data consumption – a testament of our continued value propositions from both our Mobile and Fibre businesses. Mobile data revenue grew 9.9% driving exciting mobile service revenue growth, while fixed data NGN revenue growth in our fibre business advanced 10.6% contributing to Openserve’s leadership in providing open access connectivity across South Africa. Demand for IT hardware and software at BCX was healthy as the fulfilment of orders improved along with new orders. Performance was however impacted by legacy and fixed voice revenue declines caused by ongoing migration to NGN technologies across our businesses, as anticipated. 1 Group revenue increased by 3.8% driven by the continued uptake of our NGN products by customers as well as increased data traffic. We focused on offering attractive value propositions to customers in our Mobile business which increased subscribers and data usage, while the focused smart deployment of fibre infrastructure saw Openserve sustain growth in all three NGN customer segments – broadband, carrier and enterprise. We are pleased that cost savings from our recent labour restructuring process offset the impact of load shedding as planned, but the legacy revenue declines along with higher ECL provisions weighed down on overall Group profitability. The Group will continue improving its cost base to improve profitability in the medium term. OPERATIONAL REVIEW Pleasing top line NGN growth, offset by anticipated legacy declines Group revenue grew by 3.8% to R10 668 million largely driven by pleasing growth in new generation technologies. NGN growth was driven by increased data traffic along with good ongoing growth of active subscribers in both our mobile and fibre businesses with Mobile service revenue advancing 6.5%. BCX’s IT business growth along with Swiftnet’s further commercialisation of its portfolio, also supported Group revenue growth. Group EBITDA declined by 4.2% contracting the EBITDA margin by 1.7 percentage points (ppt) to 21.0%, largely affected by the decline of legacy revenues as well as higher direct and operating costs. The benefit of reduced employee costs following the restructuring exercise, has been partly negated by the additional spend on diesel to mitigate the impact of load shedding, as well as a slight increase in direct costs, which were negatively impacted by the product mix for the quarter. We also experienced an increase in the provision for bad debts, with consumers under increasing strain from the macro-economic environment. The ongoing instability of electricity supply in South Africa saw accelerated load shedding (stages 4-6) continuing into FY2024, while the comparative period (Q1 FY2023) was largely at stages 1-2. The cost of load shedding has now largely been incorporated in our operating cost base but will continue to impact Group profitability. To this end, Telkom is investing in capital expenditure to improve our mobile and fibre networks’ resilience; as well as reduce diesel consumption by installing and upgrading to lithium batteries along with reconfiguring our sites for batteries to become the primary backup system. We are also increasing our solar power footprint at key properties/sites to reduce the impact of power outages caused by load shedding. Mobile service revenue growth drove Telkom Consumer performance Telkom Consumer recorded a 1.8% increase in revenue during the quarter, to R6 362 million. The growth can largely be attributed to the mobile business and the expansion of our fibre offerings. We experienced a 12.8% increase in our fibre subscriber base during this period. Our legacy copper-based voice revenues, however, continued their downward trajectory, declining by 24.2%. This decline is a result of our deliberate effort to reduce the risk associated with legacy voice services, which now accounts for only 4.8% of gross revenue. Mobile revenue advanced by 5.2%, reaching R5 448 million primarily driven by our continued provision of value-compelling propositions, which effectively stimulated data consumption. The biggest contributor was Mobile service revenue which increased by 6.5% to R4 561 million y-o-y. Increasingly, 2 consumers sought value on our private pricing platform, Mo’Nice which now accounts for 29.5% of total service revenue. Growth was strengthened by a y-o-y subscriber growth of 6.9%, bringing the total subscribers to 18.5 million with a blended ARPU of R83. Our post-paid ARPU of R183 was derived off a subscriber base growth of 6.6% translating to almost 3.0 million subscribers. A pre-paid ARPU of R63 remains within our target range and pre-paid subscribers continued growing by 6.9% to 15.5 million. Aligned with our strategic objective of expanding data services, we are continuing to meet the evolving needs of our customer base. We experienced a 25.1% surge in mobile data traffic amounting to 329 petabytes. This growth was bolstered by an 8.9% increase in mobile broadband subscribers, to 11.7 million (comprising 63.2% of total subscribers). Consequently, our mobile data revenue witnessed a solid growth of 9.9%. Telkom Consumer EBITDA increased by 10.8% to reach R931 million off solid revenue growth and a prudent cost containment resolve. Mobile EBITDA, however, declined by R67 million (5.6%) to R1 137 million, attributable to an increase in provisioning for bad debts as consumers continue to take strain and ECLs increased in line with the growth of accounts receivable. Also impacting profitability was an increase in load shedding costs of R54 million. We are still seeing a robust growth of our non-connectivity services, with revenue increasing by 20% to R354 million. A significant contributor to this growth is our airtime advance product, which accounted for approximately R1 039 million in advanced airtime and now represents 33% of our total recharges. This expansion in non-connectivity revenue reflects our successful efforts to diversify our service offerings and meet the evolving needs of our customers with innovative solutions beyond traditional connectivity services. Capital expenditure allowed for enhanced capacity and coverage across our network of 7 644 base stations. This represents a 4.0% y-o-y increase in the number of base stations, underscoring our commitment to expand and strengthen our mobile network infrastructure. Openserve NGN growth offset by continued legacy migrations Openserve showed growth in the first quarter as it continued accelerating its leadership in providing connectivity across South Africa. Fixed data NGN revenue increased by 10.6% underpinned by growth in broadband (up 21.5%), carrier services (up 6.3%) and enterprise services (up 3.3%). The NGN portfolio now comprises 73.7% of total revenue. The increase in demand for connectivity and consumption continues to reflect on the fixed data traffic increase of 13.3% to 512 petabytes. Openserve’s connect-led strategy coupled with the smart deployment of fibre infrastructure, enabled the growth of its fibre connected base by 9.9% connections, which include broadband and other value-added services such as voice over internet protocol, intercom and security. The accelerated decline in total fixed voice revenue of 29.0% remains a challenge, which resulted in an overall revenue decline of 2.7% for the quarter to R3 131 million. Openserve grew its homes passed base by 24.4% y-o-y to 1 107 794 homes. This focused execution, has enabled Openserve to surpass the half a million mark of the number of homes connected with fibre, 3 as they rose by 24.2% to 515 201 y-on-y, while maintaining its leading connectivity rate of 46.5%. Its digitally led innovative solutions, as well as connecting its fibre broadband customers with an average of less than 3 days, contributed to an improved interaction Net Promoter Score of 70. While Openserve’s redesigned operating model has positively contributed to its EBITDA, ongoing load shedding negatively impacted operating costs with a significant increase of R88 million y-o-y in diesel spend, resulting in a lower EBITDA margin of 28.0% for the quarter, a reduction of 1.9 ppts and an EBITDA of R876 million. Despite sustained levels of loadshedding, Openserve remained steadfast in ensuring a superior customer experience in every interaction and providing a cost-effective high-speed network by maintaining its core network availability at 99.99%. To ensure that it continues to maintain high customer experience and availability, Openserve has increased its investment in power resilience by rolling out alternative energy options. The deployment of battery primary backup solutions already yielded cost avoidance of more than R27 million in diesel costs for the quarter. Openserve will continue implementing multiple cost-effective energy solutions as part of its overall Sustainable Energy Strategy to derisk operations. BCX revenue up driven by growth of IT business Revenue rose by 2.9% to R3 499 million in the first quarter y-o-y largely driven by the double-digit growth in the IT business, slightly offset by declines in the Converged Communications business. The revenue growth mix was positively skewed towards growth in the local and international software and hardware business. The IT business increased by 17.5% to R2 068 million, attributable to growth in the software and hardware business of 62.9% resulting from fulfilling order backlogs, the easing of global chip shortages as well as successful new business development initiatives. The business also benefitted from strengthened cloud offerings and solutions brought about by the Dotcom acquisition, while IT services declined by 3.4%. The Converged Communications business revenue declined by 12.8% to R1 431 million, impacted by declines in legacy fixed voice and data, due to ongoing migrations to next generation products plus customer churn. EBITDA declined by 38.2% to R275 million as overall profitability was unfavourably impacted by revenue product mix, which was skewed towards lower margin product business for the quarter as well as higher impairments of receivables plus slow collections, particularly in the public sector, amounting to R164 million. These were partially offset by cost savings largely in employee expenses and third-party costs as the business continues to drive efficiencies. EBITDA margin shrunk by 5.2 ppts in the quarter resulting in a margin of 7.9% for the quarter. Swiftnet sustains its growth trajectory at healthy margins Swiftnet continued to commercialise its masts and towers portfolio, with 4 towers and 1 in-building solution site being constructed during the first quarter. Revenue increased by 1.2% to R326 million y-o- y, underpinned by escalations, new tenancies, customers’ 5G rollouts and existing tenant installation upgrades. Revenue from other customers increased by 11.0% to R249 million. This growth was offset by a combined 20.6% reduction in revenue to R77 million from ongoing terminations by a mobile network operator customer along with Openserve’s continued optimisation of legacy-based technologies. We are 4 confident that our customers will continue to improve their tenancies and equipment capacity on our towers during the financial year. Swiftnet’s EBITDA increased by 1.7% to R234 million y-o-y, in line with marginal revenue growth. Swiftnet continues to operate at a strong EBITDA margin of 71.8% translating to a 0.4 ppt improvement. Following the successful Power-as-a-Service (PaaS) testing in the prior financial year, Swiftnet engaged customers on PaaS commercial terms during the first quarter and are nearing implementation of the first phase of rollout. This value-add offering will provide our customers an alternative source of power security, allowing MNOs to focus on their core business of network expansion and management. CORPORATE ACTIONS TO REALISE VALUE Telkom is committed to realising the intrinsic value of underlying businesses that make up the Telkom group. During the previous calendar year, a multi-party sales process commenced following the Board’s approval to affirm and realise the value of Swiftnet through the disposal of the mast and towers business. Telkom received offers to acquire Swiftnet in its entirety during the last quarter of FY2023. These offers were further refined from shortlisted bidders over recent weeks. Telkom is currently engaged in discussions with two bidders and will provide updates on the outcome of the process in due course. Following the legal separation of Openserve into a stand-alone entity effective 1 September 2022, various initiatives were explored with the goal of realising value from this, deemed to be core, wholly owned Telkom subsidiary. Telkom conducted a market sounding exercise earlier this year to assess the depth of interest in a minority strategic equity stake in Openserve and received credible expressions of interest from a range of local and international parties. As indicated in our annual results announced on 13 June 2023, Telkom is positioning itself as an infrastructure business (“InfraCo”) at its core. Once this transition has been concluded, Telkom will consider its further options to realise value, including in relation to the expressions of interest received for Openserve. Management is investigating the possible introduction of a strategic equity partner in BCX to enhance scale, growth and capabilities in various growth areas including cloud services and cybersecurity. A process is currently underway to assess the market for potential international and/or local partners and to consider available options in this regard. REGULATORY AND LEGAL MATTERS Review of call termination rates by ICASA ICASA began its review of call termination rates in May 2021. Subsequent to publishing its findings on call termination rates on 28 March 2022, ICASA commenced with its cost modelling exercise on 26 May 2023. The cost modelling exercise is being conducted to provide a basis for regulated cost-based termination rates for fixed and mobile voice services. The rationale for cost-based pricing is to promote competition in provision of voice services to the South African population. We await a conclusion to this matter that will ensure pro-competitive market dynamics. Radio Frequency Spectrum The Minister of Communications and Digital Technologies confirmed the final analogue television switch- off date in the frequency bands above 694 MHz as 31 July 2023. If successfully implemented, the sub 1 GHz spectrum obtained in the auction in March 2022 will become available nationally from 1 August 2023. Telkom obtained 2x10 MHz in the 800 MHz, which has already been deployed in areas unaffected 5 by television services. ICASA has also started the process for the licensing of additional high demand spectrum and aims to conclude this process by 31 March 2024. Electronic Communication Amendment Bill published The Department of Communications and Digital Technologies published the Electronic Communications Amendment Bill, 2022 (the Bill) on 23 June 2023. The Bill deals with several critical issues such as spectrum trading and sharing, roaming, MVNOs, passive infrastructure and facilities access, and competition. Telkom is preparing a comprehensive response to the Bill, for which comments are due by 4 August 2023 SIU matter – Proclamation set aside, costs awarded to Telkom On 19 July 2023, the Pretoria High Court handed down judgment setting aside Presidential Proclamation 49 of 2022 (the “Proclamation”), gazetted in Regulation Gazette no. 11385 as published in Government Gazette no. 45809 on 25 January 2022. The Proclamation gave the Special Investigative Unit (“SIU”) authority to investigate various matters including Telkom’s contracting for network and advisory services, and the disposal of former Telkom subsidiaries. The Pretoria High Court had declared the Proclamation unconstitutional, invalid and of no force or effect and awarded costs to Telkom. The information contained in this trading update has not been reviewed or reported on by Telkom’s independent external auditors. All number and percentages contained in the update reflect Q1 FY2024 compared to the first quarter of the financial year ended 31 March 2023 unless stated otherwise. Centurion 31 July 2023 Sponsor Nedbank Corporate and Investment Banking, a division of Nedbank Limited 6 Quarterly financial information The financial information in the table below has not been reviewed or reported on by Telkom’s joint independent external auditors. (R’m) Q1 FY2024 Q4 FY2023 Q3 FY2023 Q2 FY2023 Q1 FY2023 June March December September June 2023 2023 2022 2022 2022 Group revenue 10 668 10 957 11 031 10 869 10 281 Group EBITDA - reported 2 235 1 053 2 492 2 608 2 334 (statutory) Group EBITDA - normalised 2 235 2 118 2 492 2 608 2 334 Group EBITDA margin - reported 21.0% 9.6% 22.6% 24.0% 22.7% (statutory) % Group EBITDA margin – 21.0% 19.3% 22.6% 24.0% 22.7% normalised % Group capex 1 153 2 055 1 657 2 684 1 005 Revenue breakdown Fixed 3 322 3 670 3 513 3 453 3 494 Voice and subscription 846 880 978 1 054 1 092 Usage 324 451 279 441 453 Subscriptions 522 429 699 613 639 Interconnection 58 69 66 74 72 Fixed-line domestic 36 37 38 48 46 Fixed-line international 22 32 28 26 26 Data 2 062 2 012 2 036 1 996 1 994 Data connectivity 1 576 1 533 1 520 1 481 1 489 Internet access and related 359 350 377 367 357 services Managed data network services 126 128 138 148 146 Multimedia services 1 1 1 0 2 Customer premises equipment 259 601 362 259 269 sales and rentals Sales 67 408 185 96 100 Rentals 192 193 177 163 169 Other revenue 102 108 71 70 67 Mobile 5 448 5 325 5 685 5 425 5 180 Mobile voice and subscriptions 1 044 1 032 1 143 1 134 1 079 Mobile interconnection 128 106 146 135 118 Mobile data 3 389 3 299 3 309 3 233 3 084 Mobile handset and equipment 804 801 1 007 844 827 Significant financing component 83 88 80 79 72 Information technology 1 654 1 665 1 587 1 743 1 376 Information technology service 680 533 696 645 728 solutions Application solutions 236 226 254 246 231 IT hardware and software 695 875 588 828 373 7 Industrial technologies 30 13 40 14 39 Significant financing component 13 18 9 10 5 Other 239 298 246 249 230 Yep 44 116 72 58 53 Gyro 195 182 174 191 177 Total 10 668 10 958 11 031 10 870 10 280 Quarterly information (Business unit stand-alone view) (R’m) Q1 FY2024 Q4 FY2023 Q3 FY2023 Q2 FY2023 Q1 FY2023 June March December September June Revenue 2023 2023 2022 2022 2022 Telkom Consumer 6 362 6 299 6 657 6 469 6 248 BCX 3 499 3 750 3 506 3 595 3 401 Openserve 3 131 3 243 3 220 3 217 3 217 Swiftnet 326 326 318 338 322 EBITDA Telkom Consumer 931 728 840 893 840 BCX 275 524 441 397 445 Openserve 876 860 948 923 961 Swiftnet 234 217 221 229 230 1 137 905 1 155 1 208 1 204 EBITDA margin (%) Telkom Consumer 14.6 11.6 12.6 13.8 13.4 BCX 7.9 14.0 12.6 11.0 13.1 Openserve 28.0 26.5 29.4 28.7 29.9 Swiftnet 71.8 66.6 69.5 67.8 71.4 Mobile service revenue (external) 4 561 4 438 4 598 4 502 4 281 Mobile EBITDA margin 20.8 24.9 20.0 22.0 23.0 Quarterly operational information Q1 FY2024 Q4 FY2023 Q3 FY2023 Q2 FY2023 Q1 FY2023 June March December September June 2023 2023 2022 2022 2022 Broadband subscribers 12 255 546 12 200 850 12 054 013 11 596 889 11 309 471 Fixed broadband subscribers 555 170 567 289 567 294 562 080 563 053 Mobile broadband subscribers 11 700 376 11 633 561 11 486 719 11 034 809 10 746 418 Active mobile subscribers 18 505 103 18 262 331 18 554 558 18 023 524 17 317 015 Pre-paid subscribers 15 538 892 15 301 339 15 624 214 15 161 977 14 534 596 Post-paid subscribers 2 966 2 782 2 960 992 2 930 344 2 861 547 211 419 Mobile blended ARPU (rand) 83.12 86.43 87.24 87.87 88.53 Pre-paid ARPU 62.60 63.74 64.16 64.47 64.77 Post-paid ARPU 182.66 200.69 203.73 205.92 208.5 8 Traffic Fixed broadband (petabytes) 512 484 492 467 452 Mobile broadband (petabytes) 329 308 309 287 263 Total fixed-line traffic (millions of 1 060 1 161 1 202 1 358 1 365 minutes) Network Homes passed with fibre 1 107 794 1 040 565 1 022 011 960 801 890 182 Homes connected with fibre 515 201 492 812 469 556 443 469 414 847 Fibre connectivity rate (%) 46.5 47.4 45.9 46.2 46.3 Mobile sites integrated 7 644 7 546 7 463 7 384 7 350 Forward looking statements Certain financial information presented in this trading update announcement may constitute forward looking statements. All statements, other than statements of historical facts, including, among others, statements regarding our strategy; future financial position and plans; objectives; capital expenditures (capex); projected costs and anticipated cost savings and financing plans; as well as projected levels of growth in the communications market, are forward-looking statements. Forward-looking statements can generally be identified by terminology such as “may”, “will”, “should”, “expect”, “envisage”, “intend”, “plan”, “project”, “estimate”, “anticipate”, “believe”, “hope”, “can”, “is designed to” or similar phrases. However, the absence of such words does not necessarily mean a statement is not forward looking. Forward-looking statements involve several known and unknown risks, uncertainties and other factors that could cause our actual results and outcomes to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. Factors that could cause our actual results or outcomes to differ materially from our expectations include, but are not limited to, those risks identified in Telkom’s most recent integrated report which is available at https://group.telkom.co.za/ir/index.shtml. Telkom cautions readers not to place undue reliance on these forward-looking statements. All written and verbal forward-looking statements attributable to Telkom, or persons acting on Telkom’s behalf, are qualified in their entirety by these cautionary statements. Moreover, unless we are required by law to update these statements, we will not necessarily update any of these statements after the date of this document, so that they conform either to the actual results or to changes in our expectations. 9