Good morning, thank you for joining us for the annual results presentation for the year that ended 31st of March. I'd like to welcome all the members of the investor community here in the room, if I may, a special welcome to our board members, led by our Chairman, Mr. Geoffrey Qhena, and also my colleagues in Exco. The presentation today will be myself and Dirk, we'll then open up for Q&As. Let's start with our operating context. No surprise, we've also experienced, as Telkom, the impact of load shedding. I think further to that is also the consumer spending and the customers who are under challenged.
If you just look at the impact of the damage to our transportation, our rail transportation system, consumers now have to spend three or four times more to actually just get to work, which obviously impacts the impact of customers and their ability to spend. We've seen inflation shoot up quite highly. Obviously, if we look at the market we're in, this does put a pressure for us. Load shedding, we'll cover more in detail, it's almost has been a 96% increase in diesel consumption. We spent over ZAR 655 million. Dirk will shed more color on how that was spent. In not just diesel cost, but also the cost of backing up batteries. Despite that, we did manage to keep our mobile network available at over 89%, equally, our fiber network as well.
Embedded in these costs is that if you look at, for instance, load shedding and the impact of roaming costs, because Telkom has numerically lesser towers than our competitors, we find that our customers end up spending more time roaming on other networks, and this is the mitigation we've been doing in the investment in batteries and other technologies. Overall, as a business, our operation revenue, despite these challenging environments, remained relatively flat. We kept our CapEx at a steady level. Obviously, the impact of all these costs, and Dirk will shed more color on that, has seen a reduction in EBITDA, reduction also in our normalized hips, as well as a negative impact on free cash flow. Amongst other these reasons, has been the intentional over-indexing on post-paid devices, which then came with that negative impact of free cash flow.
We'll shed more color on that as we go through the presentation. That being said, the intrinsic in Telkom remains firm. Our investment in next-generation network is starting to yield the results. Our mobile subscriber base has grown by 7.8 percentage points. What's more encouraging for us is the increase in data usage, particularly in that ecosystem. The continued focus for Openserve to not just cover homes, but towers and premises, is starting to yield results. We're seeing next-generation volume and value growing there quite increasingly. What's important for us is that for Openserve, it really is about the connectivity rate of about 47.4%, which is amongst the highest connectivity rates in the world.
Continued pressure on Arthur and his team to say: How can we get that even higher than 47, to make sure that the homes we pass, we connect? In BCX, we're beginning to see positive growth in our IT ecosystem, particularly coming out of IoT, which is encouraging because this is the future, and that is where Telkom is focusing. In our Swiftnet business, we've seen addition of 66 new towers. We've started now engaging in terms of power as a service proposition, and we do have a pipeline of almost 2,000 sites that we can continue to evolve, especially if you look at the demand that 5G is going to place on this country. On the other hand, as we see the positive growth in the next-generation network, we have seen a decline in your traditional legacy network.
The traditional legacy network obviously carries higher margins than next generation. What's important for us is that we've seen the continued growth in next-generation platforms across all our businesses. This talks to the continuing investment that Telkom has made in next-generation technology and our ability to future-proof this business to be relevant beyond just today. We did also have to make sure that we drive productivity internally. We announced to the market late last year, a process of exiting about 15% of our staff. This project, difficult as it is, has been completed. We have achieved our targets. The big focus remains on making sure that the employees who remain in the business continue to drive the same focus and the same energy of growing our business. ESG has become a critical factor in our lives.
In fact, it sits on not just my personal KPIs, but also our Exco. In terms of the achievements in the ESG, despite the high increase in diesel usage, we did see a reduction in power, intentional, as we exit legacy buildings. We have touched many lives. We'll continue to touch many lives, especially in key areas. In fact, a big focus for us is about growing women in management positions, we've set ourselves an internal target, quite high, of 50% in the next three years. This year marks the 25th anniversary of the Telkom Centres of Excellence program. We've invested over ZAR 125 million in the past 25 years. I'm pleased to announce that this has resulted in over 3,600 graduate employees, more importantly, many of these employees being given roles within Telkom.
This has been quite something that we've been quiet about. I thought it'd be an opportunity to actually express to the audience here that Telkom has been significantly investing in ensuring that we improve the quality of ICT technicians and skills in the country. Our network evolution. I think what's key for us is to the market understand that this evolution of this market has not been a short-term thing. If you look at the growth and the high growth in mobile, we certainly have, are now seeing in our mobile users, some of the highest usages in the likes of YouTube, TikTok, et cetera. Things that's not quite familiar to me. I'm sure some of the audience are very quite close with that. Equally, with the fiber investment, this was not an investment that Telkom started only a few years ago.
Since 1991, Telkom has been investing significantly in fiber. Firstly, for what we call our copper network, which effectively replaced the old copper network, and then more significantly and recently in the fiber to the home. When we discuss the impairment, it is this context that needs to be understood, that it has been a significant investment since 1991. Dirk did question me about putting the slide up because, as a commercial person, I will not be able to explain the full impact of impairment as best as he can. It is important for me to express that the reason for the ZAR 13 billion impact impairment, Dirk will expand on in the next slides. I'll hand over now to Dirk.
Thanks, Serame, good morning, everybody. Yeah, it's a bit of a hospital pass, but I thought it's important just to set the context of the financial results. All the slides you'll see, if you look at the long form booklet, we mostly talk to normalized to be able to compare the underlying business with the past. We had three significant events or circumstances that impacted our numbers. First of all, it is the non-cash impairment charge, ZAR 13 billion. We cautioned the market about that just over two weeks ago. How that works in terms of IAS 38, Serame, is you look at your cash-generating units when there's a impairment trigger. In our case, impairment trigger mostly result, relating around equity value compared to the net carrying value.
You then do a value and use calculation of all your cash-generating units, and that informed an impairment. For the accountants in the room, again, IFRS, you know, you must take the downside on the nose, but you can't take the upside. If we did fair value accounting, we probably wouldn't have processed an impairment. Two of our business cash generating units had to be impaired, and that was Openserve, ZAR 7 billion and consumer, ZAR 6 billion. Important, that's a non-cash event. It's historic asset values that gets impaired, and therefore, in terms of your future-looking valuations, your future-looking revenue growth, your covenants, debt plans, everything, it's got no impact on that. That was ZAR 13 billion. Secondly, the restructuring cost, we announced that early February. Serame referred to the 15% of staff being affected.
We have exited more than 1,700 staff members. Cost of over ZAR 1 billion before tax, all that cost is accrued in the current book year. The cash flow will be in the following year, that cost was 100% accrued for in the current year. Lastly, load shedding. I think load shedding, the two numbers that you'll pick up in the slides. In this slide, I talked to ZAR 500 million diesel cost and ZAR 219 million, which is the roaming, the increased roaming that Serame referred to. In the CapEx, there's also ZAR 150 million extra spend on batteries. When you talk income statement, circa ZAR 700 million impact on our profit before tax, and then you must add the ZAR 150 million that we spent incremental just on batteries.
Clearly, I'll come back to that in the CapEx slides, but we also need to recalibrate the CapEx envelope then to cater on the more longer term for energy. If we look at the normalized group financial performance, revenue, slight increase, 0.9%. I think important is still the story of the NGN revenue versus the legacy, as we've been reporting on recently. Our NGN revenue grows by 7% year-on-year, while our legacy revenue declines by 17%. The NGN revenue growth, mostly in terms of the mobile handsets, around 15%, 14.8%, actually. The mobile service revenue up 1.8%. In the IT space, mostly relating to product, we saw a significant growth of 65%. That was then offset by the legacy.
The legacy decline will probably still be with us for 12-24 months. It's certainly becoming a much smaller number than what we were used to, but that will still be with us. We then look at the EBITDA, 19% negative, with a 5% contracting in the margin. At a direct cost level, it's mostly as a result of the postpaid, prepaid mix, the indexing on the postpaid side, where from a handset perspective and your cost of acquisition, you recognize those costs all on day one, and your revenue then gets spread over the term of the contract, 24, 36 months, depending on what contract you've got.
If we look at OpEx specifically, the load shedding, I'm not gonna repeat my story on the load shedding, that had a ZAR 700 million impact on the EBITDA. We saw a significant increase in bad debts and bad debt provisions as the consumer is under pressure. Lastly, utilities. You know, you still have the NERSA increases of 10% plus, therefore, utility increase is significant as we are a big real estate owner and our property holding costs have gone up significantly. In terms of the margin that contracted, we've set ourselves a target to get the margin back to 25% over the medium term, 12-18 months.
We've already started significant revenue growth programs and cost productivity and efficiency programs, of which the staff restructuring was the first. There are others on the go. Your earnings per share obviously impacted by the lower EBITDA. Net debt to EBITDA levels at 1.8x . We believe that the balance sheet is still very strong. It's not overly geared. I think important to note that the 1.8x , it's including IFRS 16 lease capitalizations. If you exclude that normal bank debt, you're at 1.3x , which for an infrastructure company, I think is actually very prudent. The big number here, the negative free cash flow. You'll recall at half year, we reported ZAR 1.9 billion negative free cash flow.
We ended the year at 2.7%, a 55% improvement, half two versus half one. Still a significant negative free cash flow, informed by the negative profit before tax, as well as the investment in working capital, and a slight reduction that offsets that with CapEx. If we then delve into the detail of all these numbers, in terms of group revenue, as I said, it's stable. On the far right, really, the NGN revenue growing by 7.3%, with traditional revenue declining by 16.8%. You can see that it's really ZAR 9 billion versus ZAR 34 billion in terms of absolute numbers. When you unpack the next generation revenue, mobile revenue growing by 4%. Handsets, as I said, a significant portion of that, and then 1.8% service revenue.
IT up by 13%, the new fixed data products, healthy growth of 16%, 15.9%. As Serame said, that I think the NGN revenue growth is starting to come through on the back of our investment, and the legacy is getting smaller and smaller with every reporting period. We look at EBITDA, mostly, as I said, I've covered it, you know, it's legacy versus NG. The legacy moves into NGN at a much lower margin. Secondly, load shedding, impairment, and utilities. I've covered the EBITDA, for us, very important to get the product, the profitability up and get back to a margin of 25% over the next 12- 18 months.
Just to focus on the mobile, I think analysts, shareholders always ask about the mobile business separately because it's incorporated in the consumer business segment in the financials. We just extract this. You'll note that the direct expenses, if you exclude the cost of handsets, pretty much under control. The gray line on the right-hand side, your cost to serve, slightly up as a result of load shedding and then your postpaid focus. Your direct cost, the blue line, significant up as a result of the investment in handsets and cost of acquisition. Capital. Capital remain a restricted resource. We don't have abundance of capital, and we must always see how we balance the needs. We've been consistent that we will continue to rebalance the balance sheet as appropriate.
Secondly, we will continue to invest in the growth areas by way of CapEx investment. Thirdly, we will then look at the free cash flow remainder and assess whether there is any opportunity to declare dividends out to the shareholders. I'll come back to that to a later slide, just the very last bullet on this slide, dividend policy will remain suspended for at least another year. If you look at CapEx and ROIC, Patsy, you've been asking me about ROIC for three years now. CapEx intensity of 17%, it's well within our guidance. We are continuing to invest in the growth areas. You'll note on the pie chart there, in specifically fiber, mobile, and in the Mast and Tower business. In terms of the fiber, our network, fiber to the homes, we've now passed more than a million homes.
In doing that, we have managed to keep our connectivity ratio to 47%. We were at half year, just over 46%. We've increased that slightly. Our target remains to be above 50%, you balance that by the speed that you roll out new fibre. The 47%, as Serame say, is a very good metric. Not comfortable with that. We are driving it up, but at 40%, 47%, we're comfortable that we are monetizing that investment. If you look at the mobile footprint, we've grown our integrated sites to 7,500 sites. Important, the ROIC, and I think this picture is important if you start it from the right-hand side. The legacy remains the biggest drag on the ROIC, the legacy ROIC of 314% negative.
When you exclude that on your next generation technologies, where we are investing, both NGN Mobile, Masts and Towers, you'll note 6%-12%. I can't give forward-looking numbers, but those numbers should improve as we go along, and the revenue growth on those products. Free cash flow. I just want to highlight three areas on this slide, sort of in the middle of the page, the cash generated from operations. It's ZAR 3.1 billion, less than in the prior year. I'll come back to that on the following slide.
That ZAR 3.1 billion, by and large, offset, if you look at a year-on-year comparison, by no spectrum cost in the current year, where we had ZAR 1 billion in the previous year, and then a reduced CapEx of ZAR 1.4 billion in terms of CapEx cash flow. I think important to look at the cash generated from operations. The ZAR 9.8 billion down to ZAR 6.7 billion, what is the biggest influence, influencers of that deterioration? It is the profit before tax, which I think I've covered in terms of EBITDA. You'll note, included in there is ZAR 1 billion of non-cash items that one can add back if you want to do a reconciliation. That importantly is the ZAR 1.6 billion growth in working capital, specifically debtors and contract debtors, relating to trade debtors and ARC debtors.
That's an explanation of the cash generation negative. Certainly a number that we are focusing on to turn that around. It is still gonna be tough given the fact that we've got the ZAR 1 billion of restructuring cost in the current year, and the second tranche of the spectrum. That will also, the timing is uncertain, but the second tranche of the spectrum payment of just over another ZAR 1 billion will also come through probably in the current book year. If I look at the balance sheet, as I say, the balance sheet gearing within acceptable limits. At year-end, we had free cash flow, cash and cash equivalents of ZAR 3.5 billion. We have unutilized facilities of ZAR 2.8 billion, so adequate liquidity, adequate headroom to invest in future growth.
To get there, we increased our net debt by ZAR 2.3 billion for the full year. That landed up at the normalized 1.8x gearing. As I say, included IFRS 16. If you exclude that, it's 1.3x . Very important in terms of our maturity profile, we've got big chunks of debt maturing in the 2025 book year. We are at well advanced in reshaping the maturity profile of the book with significant international funders as well as local funders. I can't disclose details yet. Our boards approved, in principle, some of these transactions. Once we have signed agreements with these funders, we will announce as appropriate. That will certainly recalibrate the maturity of this book significantly. Then the restatement of the dividend policy.
Three years ago, when the policy was suspended, it was done on the back of three significant issues: the negative cash flow, the uncertainty relating to spectrum, and the high levels of net debt to EBITDA. I think you will agree with me that free cash flow is still an issue. Net debt to EBITDA, I'm not lying awake about it, but we would like to get it back to the 1.5 level. Now there's the economic conditions, load shedding, et cetera. The board has suspended the dividend policy for at least another year, whereafter we will reassess. My last slide. In terms of revenue, low to mid-single growth expected. We believe that's achievable. Very low for the current year, but that will improve.
In terms of EBITDA growth, low to mid-single digits over the three-year period, still, we believe that's achievable. We do see the negative growth in the current year will turn around. CapEx 16%-18%, we're keeping the guidance. Then the balance sheet, I've been talking to you all about the 1.2x for at least the last three reporting periods. I think given an infrastructure company, a big property investment company, 1.2x is way too conservative, and we're comfortable around the 1.5x-1.9x debt to EBITDA. With the four different business units, we'll split it up by business unit, and we look at different investment grades, credit gradings for each.
On a blended ratio, we believe the 1.5x-1.9x is where we will end. I'll conclude there and hand back to Serame. Thanks, Serame.
Thank you, Dirk. I think in the past few days, there's been a lot of communication in the press of potential corporate activity. Two things: I think Dirk certainly has assured that the business has the right levels of liquidity. Number two, the board has equally supported us that we do not need a knight in shining armor, be it my former employee or my former employer. The board remains firm that the journey that we're taking for the business will deliver the true results for Telkom. Yes, we've had to make some hard calls. Impairment is a significant call to make, but we've made those calls. We've had to look at the structure of our businesses. Not an easy call to make, but we made it and we committed it. We will continue to look at opportunities to create value for this organization.
We did set out to separate these entities so that we can realize the right value underneath them. In Swiftnet, our towers business conversations have gone quite far ahead. The market is rightly so impatient that we've not concluded these. The point for us is to be prudent and ensure that we can execute these propositions at the right value for Telkom. Hopefully, we'll make announcements shortly on this. We started a process of engaging with potential partners in Openserve. As I said in our last meeting, Telkom does not see ourselves disposing or diluting ourselves to a minority share in Openserve. It's a critical infrastructure for us. That's the type of conversations that we're driving.
In BCX, it's about saying, how can we get the scale and the capacity to help us ensure that where we're seeing the new growth, particularly in the IT services, we find the right partner to do that. What are our priorities? Short term is releasing the cash. It's key for us to make sure that the free cash flow situation we find ourselves in is turned around quite significantly. Supporting that is to improve the return on our assets, making sure that the assets we have on the ground, we sweat quite significantly. The last one is to transform the way that Telkom has been operating in the past few years. The big drive and the big message internally is how do we make sure that we operate as Team Telkom, Telkom One, Telkom United?
We've got the opportunity, with all the assets we have, to actually punch with not just two hands, but three hands, and that's the big focus for us. In this instance, at our core, we remain an InfraCo. That's Telkom's strength. If you look at the fiber opportunity that sits in this market, Dirk and I have mentioned about the fiber connectivity rate, nobody can touch us in that space. Our mobile business, in the past five years, grew from five million subscribers to 18 million subscribers, becoming the third mobile operator in the country, with a very high data usage. We shall continue to grow that. Telkom is blessed with data centers, some of the leading-edge data centers in this country, and if you look at the demand on these ecosystems, it's about how do we make sure that we maximize those opportunities?
Our next-generation assets allow us to even go further and even give opportunities of edge data centers, which nobody else can. Yes, we do have real estate, some which is core. We've identified the non-core ones. We'll be disposing of those quite quickly. Telkom of tomorrow, what does that look like? If you look at the BCX ecosystem, we have our BCX services, IT services, and we have our converged comms. Dirk has outlined how the movement in connectivity from old technology to next-generation technology comes in at lower revenues and lower margins, but it is a key differentiator for BCX to go with them. In the consumer and the mobile business, yes, we did over-index in terms of getting our postpaid acquisition. We feel that we are comfortably at the level of where the postpaid contribution is to the market.
The opportunity still lies out there in saying, how do we take our rich data propositions to the prepaid market? We'll be announcing a lot of interesting strategic partnerships that we're doing with the big retailers. In Swiftnet, as I mentioned, we want to complete the towers disposal project, we should be announcing that soon. In terms of our InfraCo, how do we consolidate all that data and that fiber that sits at the core of our business to make sure that our rate of connectivity remains high? Digitally, I'll be the first to confess, we have not been the best in this ecosystem, but we do have an opportunity to make sure that with the right focus, we leverage the right digital opportunities to drive stickiness for our customers.
Our SME division still has significant opportunity to drive growth in this high growth area environment, and our internal restructure is to make sure that we have stronger focus on that. The big thing, ladies and gentlemen, in terms of the changes that we want to effect in Telkom, is really about saying execution at no price. I had the unpleasant opportunity this morning to announce to our staff that there will be no salary increase and there will be no bonuses. We need to earn, and we need to make sure that delivery and focus on delivery is what we paid for. It's a tough decision that we had to make, but it highlights that in the new Telkom, execution is first above everything. Thank you. I'll hand over to Nondyebo for questions.
Thank you, Serame. My name is Nondyebo Mqulwana, and I will be moderating the Q&A process. We've got people listening on three platforms. We've got people here at the JSE, some people are connected via Chorus Call, and we also have the webcast. We will be taking questions from all those three platforms. I will start with two questions from the floor. Please, can you introduce yourself and then ask your question?
Hi, thanks for the presentation. It's Preshendran from Nedbank. I've got two questions. The first one is a bit of a loaded one on the impairment assets that you had. I know that your legacy revenue was about 18% contribution to group revenue. If the presentation numbers and my math is correct, it seems that that's increased to 22%, if it's nine and a half billion. How does that feed into your calculation of the value and use for those assets? You've obviously known that you've been discontinuing these services over a period of time. Have you made, like, a firm cutoff date that requires you to impair and do this big, bulky impairment in the year? Just wanna know how you thought about that, and is there an...
Are we gonna see a falloff in revenue when these services have a hard cutoff date from servicing? That's kind of, like, the first question. The second one is, obviously, you alluded to this of the offers that you've obviously had for your business. There's obviously a lot of people that wanna take you to the dance, but it seems like you don't want to go, or is there something that, you know, in your mind, that you're looking for either a price or what's obviously deterred you from a lot of these advances that you've had so far? Thanks.
I'll take the impairment.
Yeah, in terms of the impairment, I think, first of all, your value and use calculation is a forward-looking, discounted free cash flow. Clearly, the exit of legacy has been taken into account. If you say, is there a final exit date? The answer is no. It still phases out, but that is incorporated in your depreciation charge, where every six months we've got a depreciation council, which is also joined by the external auditors, where we assess the value in use, and the remainder that's there after the impairment should be catered for by your depreciation charge. In terms of was that impairment specifically allocated to legacy? The answer is again, no.
IAS 36 requires you to proportionately allocate it across all the asset categories, except you hit any intangible goodwill first, and then you proportionately allocate it. It's been proportionately allocated across NGN and legacy. I think suffice to say that what remains after this in terms of legacy assets in use is, I don't wanna call it insignificant, it's very small. Hope that helps.
Preshendran , if I may take an attempt at answering your second question. Let me be cultural and philosophic. It's like a process of a lobola, right? When you go to a lobola, you send people upfront with a letter to show intent, right? You also leave something with the family to show that you can take care of their daughter, right? Until somebody comes to our chair with a strong letter and also proof that they can deliver on their proposition, then all approaches will not be considered. I hope that answers the question for you.
Jonathan.
Hi, I'm Jonathan Kennedy-Good from JP Morgan. Quick question on cash flow looking forward. If I think about, You spoke about spectrum of ZAR 1 billion next coming year, and I think the restructuring costs of ZAR 1 billion. If I looked at your cash flow, it seemed as though there's simply a timing difference because you invested, I think, ZAR 7.5 billion in cash and in CapEx, but only paid ZAR 6.5 billion. Just wondering I mean, that's already ZAR 3 billion down to start the year, just trying to understand how we should think about cash flow during the year, and whether you can sell some of the handset book again.
Secondly, just trying to understand, you know, there's been a lot of speculation in the press about what actually, you know, what this Axian offer is. It seems to me as though it's a, it's a offer for part of the company, or was it, was it for full Was it for a controlling stake? Can you disclose any further details of what the actual sticking point was? It seems as though, at least the way that I read it, there might be some thought around capital injection as well. Just some thoughts on that. Thanks.
Let me take the cash flow again, Serame can talk about the offer. In terms of the cash flow, you're right, and I think I said it, for this year, the cash flow will still remain under pressure, not to the extent where we were this year. We are relooking the CapEx spend in terms of new capital allocation, and that will come down slightly. We will continue to sell off handsets, Jonathan. We did, in round numbers, ZAR 1.4 billion in the current year. We did just under ZAR 1 billion in the prior year, and that ramps up as the book matures, the contract book matures. The banks really only look at that when there's credit history on the book. I can...
The treasurer is sitting at the back there, but I would assume that we'll get to similar levels of the current ratios. We will improve the profit before tax. You know, clearly, with the cost initiatives and the revenue growth, the operating negative or reduction in operating cash flow should improve. Yeah, the cash flow is still a challenge for the current year.
Thank you. Is?
There was a second question from Jonathan?
Oh, yes.
I think in terms of the Axian proposition, I will not go into the details of exactly what was contained in those offers. What I will highlight is that the I-Board was formulated. We actually did have an I-Board when we were having further conversations in the past year with MTN. The I-Board considered the proposition presented and felt strongly that it was not reflective of the value that a Telkom would be worth at that point in time. There was also issues on the certainty, like I said, certainty of the proposition being executed.
The I-Board is always open to such conversations, and part of the process that they go through is to look at, is the offer, reflective of the market value of Telkom, and two, is the entity able to execute upon that proposition? I can also assure that no due diligence was done at this point in time, and that's where the matter has ended.
Thank you.
Okay, we'll now take any questions from Chorus Call.
Thank you. Just a reminder for the participants on the line, if you'd like to ask a question, please press star and then one. If you'd like to ask a question, please press star and then one. We will pause momentarily to see if there are any questions. At this time, there are no questions on the phone line.
Thank you. There's a number of questions from the webcast platform. The first question is from Wessel Joubert, from Oyster Catcher. He has a question around the tower portfolio. His question is, we appreciate that it's complex and asset sales always take longer than expected. What is the current reason for the tower sale taking longer? Is it more from a terms of conditions or valuation perspective?
It's a combination of both. It's the valuations and also the conditions of the offers that have been received. We've got three offers currently in play, all with different conditions, and we hope to conclude these in the next two or three weeks to announce the final bidder. I don't know if you want to add more color ?
No, no, I think it's covered. Yeah.
Thanks, Serame. Another question around clarifying whether or not BCX is for sale?
I think in BCX, we've always talked about finding the right strategic partner. What we need in BCX is scale and capability. If we do find the right strategic partner, we'll definitely have that consideration.
Thank you. I'm just checking around the floor if there's one or two more questions.
There's a question at the back there.
Hi. Thank you for the opportunity. Vic from RMB Morgan Stanley. Just on your mobile business, I mean, I think from the start of the financial year, where you were indicating that you'll grow above the industry, it's come down to now, almost equivalent to the industry level growth that you have indicated. I mean, I think is it fair to assume that mobile for Telkom is kind of X growth, that extra data growth that you were seeing is kind of normalizing? I think more from that perspective, in terms of that you obviously tilted your book towards postpaid, which obviously came with more cost. Now, I mean, I see that, you know, there are more prepaid offers. Is that cost reversal going to happen?
I mean, is that probably much easier in terms of moving from that 20.5% mobile margin to a higher margin because you won't have those postpaid costs going forward?
I must always be tempered and hard answer the mobile questions because that is where I came from. I see the CEO is here, maybe I'll ask him to answer, don't worry, Lunga, I won't put you on the spot. Mobile, for me, is not sub growth. I think if you look at the profile of our customers and the profile of the customers that we built, it's more 4.5G-ready customers. If you look at the opportunity that currently exists in the market, our competitors have significant volumes of 2G subscribers, that's where we see the opportunity for mobile to grow, particularly in the prepaid environment. Will it be at the high growth rates that we saw in the early years? Definitely not.
It certainly is not, sub growth in that regard. The postpaid, I think you will start seeing the effects of those postpaid wash off. The high acquisition, sales in the first 18 months, that will start tampering down. Yeah. Your prepaid acquisition obviously does not require the same accounting treatment because you buy the handset and the device upfront, and off you go.
I think just to add on that, the higher growth on the postpaid is not the challenge, the cash flow is the challenge. Your question, will the higher growth reverse? No, it won't. Will the cash flow reverse? Yes, it will, 'cause you had that cost on day one, and you're unwinding the deferment of that revenue over the term of the contract, and therefore, your cash flow will certainly improve. As Serame says, we've leveled out on the growth there, so we won't see the steep growth in postpaid anymore. I think we've now reached a normalized level, and therefore, the increase in growth in postpaid will stop, and the investment in working capital should start unwinding.
Thanks. Just some financial questions for you, Dirk. What's the sustainable profitability levels in the various segments? The second one relates to whether or not restructurings/impairments are done or if there's more to come?
The sustainable profitability level, I think we want to get it back to 25% EBITDA, and we believe we can get there 12 - 18 months, given the revenue initiatives as well as the cost initiatives. In terms of impairment, I cannot see that we'll see an impairment soon again. Remember, it's built on the valuation, given the five year business plans. The five year business plan's currently muted as a result of the economy out there. It's an historic thing that's been coming for a year or two. For the last two years, yeah, we had impairment indicators, our valuation, if you look at the mid, medium, low, medium, and high base, we managed to not put an impairment through.
We've now done that, so yeah, I can't see another impairment coming through soon. Not before I retire.
Okay. Thanks, Dirk. Just a couple of questions around our fiber assets. The first one talks to connectivity, as to the optimal connectivity we're targeting. You mentioned is 50%. The question is: When do we expect to get there? What strategies are being implemented to drive Openserve to that optimal level?
I think what's important to remember is that, you know, we actually were at 51%, a couple of years ago, and I think that was as we passed more homes now, that connectivity rate has dropped. I've also indicated that it's how we build that fiber. The first thing is that you get LTE usage at home, which gives you an indicator of high volume. You, you kind of, the old South African term, you fish where the fish is. That's then will help us match and get those connectivity rates much, much higher. Yeah.
I think that's the difference. It's the difference between a land grab strategy and a connectivity strategy. Your connectivity will go down as you build more inventory. Certainly from an Openserve perspective, we're not playing in the land grab. We're not just gonna build for the sake of building. We'll build where there's demand, and we'll build where there's opportunity to monetize. Therefore, you know, you'll build in a responsible manner so that you can keep the connectivity up at those levels.
Thank you. I'm just checking with conference call again, if there's any questions for Serame.
There are no questions on the line.
Okay. Any final questions from the floor before we close the Q&A session? Thank you. Serame, Dirk, do you have any closing comments?
Yeah, I think from where I'm sitting, I think we are going through a transition period as Telkom. It's going to be an 18-24 months transition period. I think in terms of the structures and the strategies that the board has approved, we certainly do see a far bigger opportunity of creating the value. I think we've set out ourselves to unlock the various entities. The big challenge now is in how do we flip that to value creation, which is what our shareholders are looking for.
Thank you.