Please note that this call is being recorded. I would now like to hand the conference over to the Investor Relations team. Over to you, Nondyebo. Please go ahead.
Thank you. Good afternoon and welcome to the Q1 Conference Call for the 2026 Financial Year. I'm Nondyebo Mqulwana, Head of Investor Relations at Telkom . We published our trading updates for the first quarter earlier this morning, and we hope you've had a chance to go through it. Joining me on the call today are our Group CEO, Serame Taukobong, and Group CFO, Nonkululeko Dlamini. They will present the key performance highlights for the quarter ending June 30, 2025, and they will move on to a Q&A session. Please note that all financial metrics and growth rates referred to during the call are on a year-on-year basis, meaning Q1 FY 2026 compared to Q1 FY 2025, unless otherwise indicated. This call and trading update may contain forward-looking statements, which are based on management's current expectations and are subject to risks and uncertainties that may cause actual results to differ materially. With that, I now hand over to our Group CEO to take us through the key highlights for the quarter.
Thank you, madam. I hope that you get to hear us loud and clear. We appreciate your continued interest in Telkom and welcome you all on board on this call. As we commence with the 2026 financial year, we do so with solid performance and momentum carried forward from a strong 2025 performance. This continued progress is a direct result of our data-led strategy, which underpins our performance for the quarter. Our unwavering focus on operational excellence across all business units, along with our One Telkom ways of winning, has enabled us to sustain our performance, and we remain focused on delivering results as we build on our proposition as the backbone of South Africa's digital future. These solid Telkom Group results were disappointingly affected by BCX performance, with BCX revenue declining by 8.3%, while its annuity-based revenue remained flat.
Aligned with our focus of delivering results and maintaining our save-do ratio, a specialized team has been put in place to continue its work and to foster an effective BCX delivery driven on people, strategy, and proposition execution. The continued effective execution of our data-led strategy has cushioned Group revenue as a result. Group data revenue grew by 7.1% and represented almost 60% of total revenue. Mobile data revenue increased by 9.6%. Openserve fibre data revenue grew by 11.3%. It is the performance of the data revenue that gives us the confidence that we are heading in the right direction to achieve our new medium-term guidance of mid-single-digit growth. Group EBITDA advanced 6.5 percentage points and had an EBITDA margin of 26.95%. Nonkul will share more as she goes through the results.
We received ZAR 158 million in proceeds during the quarter from eight of the 30 properties that are in conveyancing process at the end of 2025. The remainder of the properties, with sales value of about ZAR 121 million, remain in the conveyancing process, and we expect to receive the cash later in the year. We would like to reiterate that we don't anticipate the disposal of none or properties to be significant going forward. This will be reliant on the decommissioning process and exit of properties in Portland Circle. With that, let's have a closer look at operational results for each of our business units, starting with the mobile business, which is under control. Mobile business revenue grew by 7.8%, tapering down in line with our expectations, as indicated in the last engagement, due to a higher base that we're drawing from a prior period, along with an intensified competitive landscape.
That is still a very positive outlook. The business now boasts 7.2 million data subscribers, comprising 72.1% of the total subscriber base. 1.9 million data subscribers were added in Q1 alone. Prepaid subscribers continue to grow robustly. Although we saw a decline in the prepaid ARPU at ZAR 58, it does reflect the continued growth of higher volume non-metro regions as mobile continues to drive its growth in these value-shaped markets. Concurrently, the share of acquisitions in the underserviced regions improved by 5.4%. While the growth in non-metro regions may dampen the prepaid outgrowth, the priority remains in driving recharge activity and growth service delivery, propelled by robust data remains. Postpaid subscribers increased marginally, with the outgrowth of this base improving to ZAR 187. Mobile data traffic grew by 15.9% as we remain at a high conversion rate of traffic to data revenue.
Moving to Openserve, Openserve recorded an overall revenue growth of 2.8% year-on-year as fibre data revenue grew by a total of ZAR 254,000. Fibre revenue contributed 86% towards operating revenue. External revenue increased by 5.9%, driven by 9.3% growth in fibre products and services. As always in Openserve, customer experience continues to be world-class, with Net Promoter Score improving to 80.1% from 72.3% at the end of March. As indicated, the BCX performance, now touching on prepaid BCX, was disappointing for the period affected by overall revenue growth. Migrations from legacy voice-to-data reduced software and hardware sales, along with delayed budgeting spend from public sector customers, led to revenue decline. As we've indicated, we have put in mitigations internally to ensure that we are driving a strong focus on continued execution, focusing on people, strategy, and process.
We expect the financial performance to strengthen over the remainder of the year, supported by the strategic innovations already underway, with anticipated stronger spend, particularly in public sector, for the end of the year. BCX will continue to advance its transformational journey towards higher margin with recurring revenue streams driven by IoT and fibre-led services. Focusing now on CapEx and Group level overall, we invested ZAR 1.1 billion in the first quarter, and our smart CapEx deployment led to the following: 56 mobile sites being added, 36,000 homes passed, and 29,000 homes connected during the quarter, resulting in a connectivity rate improving up to 51.1%. This means that we connected about 80% of the homes we passed in this quarter, driven with a significant portion from existing inventory. The CapEx was primarily invested to expand the mobile and fibre networks and to modernize the Openserve network.
Although the CapEx declined by 32.8% on a year-on-year basis, this was partly due to the higher CapEx in Q4 FY2025, particularly in the consumer business. We foresee CapEx largely realigned on our typical year-on-year investment trajectory as the financial year progresses. Although CapEx intensity for the first quarter was at roughly just over 10.2%, we do anticipate this CapEx being within our guided range of 12% - 15% by the end of the financial year. I'll now hand over to Nonkululeko to take you through the financial details by me, and I will come back to Nonkululeko over to you.
Thank you, Serame. Welcome to everyone into this call. Let me start with the revenue performance for the quarter. Our revenue grew by 1.1% to ZAR 10.8 billion in the first quarter, and it was driven by the data revenue growth. Telkom consumer revenue increased by 5.5% to approximately ZAR 7 billion. Mobile revenue grew 7.2% to ZAR 6.1 billion, and it was driven by mobile service revenue growth. Openserve overall revenue increased to ZAR 3.1 billion, while BCX revenue declined by 8.3% as indicated by Serame earlier. Group EBITDA increased to ZAR 2.8 billion, and Group EBITDA margin, excluding property sales, improved to 24.7%, highlighting the strength of our underlying operations. Performance of EBITDA and EBITDA margin was as follows at FEU level. Telkom consumer EBITDA grew by 18.5% to ZAR 1.4 billion, leading to an EBITDA margin of 20.5%.
Mobile EBITDA saw growth of 5.8% to ZAR 1.6 billion, attributable to service revenue growth, resulting in an EBITDA margin of 26.4%. Openserve EBITDA increased marginally by 0.9% to ZAR 1 billion, while EBITDA margin contracted slightly to 32.8% year-on-year. The BCX EBITDA decreased to ZAR 189 million and the margin compression to 6.5%. These were primarily driven by the revenue decline. The margin compression for BCX was partially offset by cost efficiencies from the financial year 2025 cost initiatives that we spoke about, which supported operational expenditure reducing by 11.9%. Mobile and Openserve delivered solid EBITDA margins in quarter one. However, we recognize the need for continued focus and execution to enhance the margins of BCX. Our financial position remains strong following the settlement of ZAR 4.75 billion interest-bearing debt post-year end from the proceeds of ZAR 6.6 billion from the sale of Swiftnet.
The remainder of proceeds has been retained to maintain financial flexibility for growth opportunities without compromising the strength of our balance sheet and its resilience. We concluded an unsaid sale of ZAR 300 million in the first quarter, and we continue to tap the ZAR 812 million for financial year 2026, as previously highlighted. Thank you, I will hand back to Serame.
Thank you, Madam Nonkululeko. This is the fourth first quarter of our financial year. While we are encouraged with the momentum that we're carrying forward from the previous year, we remain firmly committed to delivering on the targets we have set for F2026 and in the medium term. We believe our data-led strategy will make a foundation of our performance as we reinforce our position as South Africa's digital backbone. Revenue is receiving heightened attention, and we are laser-focused to level in line with our medium-term guidance at Group level. We will continue optimizing selling channels, improving customer experience on our requests, and providing customer-centric value with flexible and affordable offerings. I will now hand over to the operator to open for Q&As. Thank you.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, you're welcome to press star and then one on your touchscreen phone or on the keypad on your screen. You will hear a confirmation tone that you have joined the queue. 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, please press star and then one. The first question we have is from Prashendran Odyar of 361. Please go ahead.
Yeah, good afternoon, everyone, and congratulations on the results. I've got three questions, if I can, Serame and team. Firstly, just on BCX, can we expect more pain for the rest of the year? I know you guys are focusing on the higher margin revenue opportunities, which is your cloud and your hosting, but it doesn't seem to be materializing in terms of your actual EBITDA that you achieve. Other than the cost optimization initiatives, which I know you guys are very good at doing, what else can be done to actually improve the profitability of BCX? If you can give us some plans on what you're going to do and what we can expect for the rest of the year. On CapEx, it seemed quite low for the quarter. Is there an expected ramp-up for the rest of the year? Is there any particular reason it was relatively soft for this first quarter? I'm going to take my chance on this one. I know you guys don't disclose balance sheet metrics, but thinking about your lower CapEx, your working capital, lower debt, your free cash flow generation looks to be quite strong. That probably ties into your gearing, which by my numbers looks like it's the lowest of all the listed telcos in SA . Is that right? Could you share what your gearing is at the end of the quarter, if possible? Thanks.
Thanks, Prish. Okay, I'll take one call, two questions. Operator?
The next question, yes, I can, sir. The next question we have is from Madising of HSBC. Please go ahead.
Yes, hi. Can you hear me? Great. Thanks. Thanks for taking the question. I have two quick ones, hopefully. The first one is on BCX as well. As you know, we see some stabilization in BCX performance. Then we have another weak quarter. I know that you had said in the recent past that you are not looking to monetize it as such. You're focusing on changing the business structurally, fixing it. I wonder whether that is still the view and you are not looking to, let's say, monetize the asset at all. Because I think from a market perspective, this remains probably one of the last underperforming units within the business. Wondering if there is any change in the view there on BCX. Secondly, I just wanted to hear your views on the prepaid market. I think the quarter itself, you again outperformed the peers, but your growth run rate seems to be coming down somewhat from a double-digit run rate to now high single. Just wondering whether that means do you need to change any strategy here or you are happy with the high single-digit growth here and you will continue with the current strategy of keeping the price differential with the competition. These two questions. Thank you.
Thank you. Okay. Let me talk to then BCX overall. I think you and Prish asked the same question in terms of BCX. As I said, we have put a team in place. We are working at BCX on quite a broad context in terms of people, strategy, execution. As part of the ongoing work of this, we will make the right calls that align with our strategy, accordingly, based on those principles. That is key for us, that it is important that as a one Telkom proposition, we own the program wholeheartedly and we are driving that focus to make sure.
Prish, to your point, and Madison, yes, it has been not the best start of the quarter, but we do foresee that in the principles that we put forward along the lines of people, strategy, and process, particularly in strategy execution, the big focus is on making sure that we deliver what is required in that. I will talk to CapEx, which is also a point that you raised. The CapEx ramp-up will certainly, as I indicated, be in line for the ETA and through the 12 %- 15% guidance that we've given. It is a function of seasonality in Q1. We're comfortable with that, CapEx growth. I will take Madison in your principle you talked of prepaid. The key thing for us is, yes, as we've indicated to the market that as the base growth gets bigger, we would see that revenue run rate coming down some.
I think still at that high levels we're seeing right now, it is still quite ahead of market growth. What's important for us is a couple of things. One, it's the type of acquisition that we're getting, which is important to ensuring that we do maintain our data share of revenue at the highest levels, and that's the big focus for us. We continue to monitor, for instance, our daily recharges, which actually have been consistent and heading to the levels that we want. As the base is growing bigger, we are obviously experiencing the temper growth that we see. It is still at high single digit, far higher than the market growth. The key thing for us is to maintain that prudent growth without us diluting significantly that output.
If you look at the fact that we've grown our subscriber numbers by almost 22, yet maintaining an output and an output drop of just under ZAR 2 for the quarter and 6% year-on-year, that still shows the fact that the guys are continuing to make sure that we mine those new subscribers as they come in and get that data usage up to the right levels. Nonku, I think there was a question being on balance sheet. It says you have those, that both Prish and Madison have those.
Yes, thank you, Serame. Prish, on the balance sheet, if we just go back to the year-end, the significant movement in the quarter would have been on the receipt of the proceeds at the last three days of the financial year and last year. We would have then in the financial year and the quarter paid ZAR 4.75 billion of the proceeds to the debt that we had identified to be prepaid. Significantly, we had maturities that were largely in the first quarter, and we've then circled those, which resulted in us not having to raise any new debt. From the debt perspective, fairly stable, and we have paid back and have even prepaid from the proceeds. From the EBITDA level, as we have indicated here, the 6.5% growth in EBITDA. It has not really changed much in our net debt to EBITDA level to any worse position.
We are fairly stable there. The free cash flow impact from where we are is largely going to align to what we said at the year-end, where we indicated that we are driving towards a free cash flow position that would be stable and continue in the positive trajectory and largely driven by the performance that we are driving for the financial year. The CapEx element is built in there, as Serame has indicated, for the full year, and therefore there isn't any significant big numbers we would expect from there to change the free cash flow position as indicated. Net debt to EBITDA fairly stable as reported at year-end. Free cash flow, as we indicated, the expectation from year-end is a fairly stable trajectory.
The once-off elements we had built in, as an example, we spoke about the Google transaction, which was last year, and we indicated that it was not repeating, and that is indeed not repeating, and there were once-off BCX costs. In the new year, what we had then done was to build in the cash outflow expectation from having Swiftnet as an external entity.
Have you covered, you guys?
The next question we have is from Jonathan Kennedy -Good of Prescient Securities. Please go ahead.
Hi, good afternoon, and thanks for the opportunity to ask questions. I just wanted to check in with you on your mobile data subscriber numbers. Those were up almost 2 million quarter -on -quarter, which seemed to outpace the general subscriber growth by a fine margin. Just wondering what's driving that uptake. It must be within your base, I would think, and whether there are specific products that are driving that trend. I noticed there were some price increases on the mobile side that got passed not too long ago. How have those been received by the market, and are they accelerating revenue growth at the moment? Can you comment on that or provide any color on that? Thank you.
Sorry, Jonathan, I didn't get the last question quite clearly.
The question was around price increases that were put through by Telkom Mobile recently and how those are being received in the market. Are you seeing any churn, elasticity changes, or is it translating into stronger revenue growth?
Thank you. Are we taking one question or are we taking two?
Jonathan, do you have any other questions?
I had two questions there. I don't know, did I hear the first one?
Yes, it is.
Thank you. The next question we have is from Nadim Mohammed of SPG Securities. Please go ahead.
Good afternoon. Thanks for the opportunity to ask questions. Just two from my side, or rather three, if I can. If I look at fixed data revenue, that seems to be accelerating quite significantly to a growth rate of 2.7% year-on-year. Could you help us unpack that? My understanding is a lot of it was driven by fibre. I'd just like to understand whether the trackers are on that growth rate. Secondly, if you can unpack the strategy around regional activations, it seems like you do quite well in terms of getting share in those regional activations in the motor. Could you give us a sense of how that's playing out and what the strategy is there? Lastly, just a follow-on from, or an add-on to Jonathan's question, just on those price hikes that Telkom put through, I noticed that the social bundles were included in there, especially lower value social bundles. Could you give us a sense of a thinking plan? We often thought that was quite a sensitive area in the market, and raising prices there might be quite risky. Thank you.
Thank you. I will take those two questions. To take on the data set, Jonathan, it is driven actually to probably Nadeem's questions, which is on the regional activation. What the guys do in the mobile ecosystem, without giving away the numbers sequence for us, is it is quite a focused approach to say where we've got mobile network capacity and we have a regional distribution footprint capacity. We align all those together to make sure we've got mobile network that's currently underutilized, which is in the regions. We are expanding outside of the distribution of the company. We go then and acquire from 2G and looking for 4G propositions. That's where we're getting this attractive growth of those customers coming in.
The key thing is bring those customers in, and as quickly as possible, then because of the more nice propositions and active base management, we then move those subscribers, watching particularly our 70% active ratio, keep those subscribers in the higher range. That's the kind of insight that's driving those subscribers. It is moving predominantly competition's 2G voice subscribers to data, which is where you're seeing that lower output lag, but it's intentional because we're taking the top end of that 2G voice in that regard. That talks to the regional activation and I guess the projector in the price bundles. I don't want to indicate that where we'll be taking price increases. It will be in the areas where we see that there is elasticity to respond to those price increases.
Unlike taking a blanket inflation type 5% increase across the board, we have been selected in where we've taken the price increase. So far, the trends are showing that customers have not been too voluntarily opposed to that. Yes, we've seen some customers who were not happy with that price increase. Overall, we're seeing that the continued growth both in data traffic and data revenue is in line with our expectations. Those price increases were not too negatively received in that market. You talked of the fixed data revenue decline. The fixed data revenue decline that you referred to is the legacy fixed data revenue decline, which is intentional, right? As you're moving from copper-based or legacy-based technology to fibre. That is predominantly us protecting ourselves. It is a managed decline because we are migrating those customers in from your legacy copper to your next-generation type propositions. That's why we're seeing that your fibre revenue up. Questions? Jonathan, you want to turn the data sets up to? I'll take a couple. Go ahead. Have I covered you both, Nadim and Nondyebo?
Yeah, I think just if you could maybe chat a little bit more about those social bundles and, you know, our sense of those in terms of.
As we were saying, we were taking price increases. It's not across all the social bundles, but at some, there was a news. Obviously, in the lower price points, we were not too happy with the price increase. We've seen it in the responsible market, the data volume is still growing, and the value is still growing in line with that. It's within the comfortable range that we wanted to go for. Did I cover you there?
Ladies and gentlemen, just a final reminder. If you would like to ask a question, please press star and then one. We will pause a moment to see if we have any further questions. It seems at this moment we have no further questions on the line, and I would like to hand back to Serame for any closing remarks.
Thank you very much for that. Once again, thank you for joining us on the call, and most importantly, for your continued interest in Telkom. We will be meeting with some of you tomorrow and the next few days. Please, if there are any further questions, do send through to Tim, and we will try to respond as quickly as possible. Do have.
Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.