Telkom Sa Soc Ltd. · JSE:TKG
Telkom Sa Soc — FY2019 Earnings Presentation
54 slides from Telkom Sa Soc's earnings presentation, 2019
Slide 1: Annual Results Presentation
Telkom SA SOC Ltd Annual Results Presentation for the year ended 31 March 2019 Telkom Annual Results Presentation 2019 1
Slide 2: Tough trading environment
Tough trading environment Macro-economic Regulatory Competitive environment environment environment Low GDP growth Integrated ICT policy Voice revenue under pressure Consumers under pressure Withdrawal of EC Pricing pressures in the Exchange rate volatility Amendment Bill Enterprise environment Enqu
Slide 3: Business Performance
Business Performance Key focus areas 1 Business performance Financial performance Conclusion Q&A Telkom Annual Results Presentation 2019 3
Slide 4: Solid group performance
Solid group performance Group operating revenue1 EBITDA2 Capital investment 5.3% 8.5% R41.8bn R11.3bn R7.7bn Mobile service revenue HEPS3 Annual dividend 58.3% 22.6% 2.0% R8.2bn 722.4c 362c 1 During the year we restated the prior year revenue by R1 357 million. Of this amount, R656 million related t
Slide 5: Strategic focus areas
Strategic focus areas • Accelerate • Grow • Modernise the • Optimise and • Stabilise the mobile growth connectivity network grow the mast & business • Drive high-speed • Improve IT • Commercialise tower portfolio • Rationalise and broadband services the network • Commercialise optimise costs • Netwo
Slide 6: Key strategic focus areas
Key strategic focus areas Mobile growth High-speed broadband Network expansion Content and VAS Telkom Annual Results Presentation 2019 6
Slide 7: Accelerated growth in mobile
Accelerated growth in mobile Subscriber growth Mobile service revenue ‘000 9 681 Rm 8 155 1 874 44 5 151 2 194 5 208 3 498 35 3 999 1 227 1 478 7 807 85.9% Pre-paid 31 1 111 1 433 5 917 58.3% Data 2 772 3 730 Post-paid 3 683 Voice 2 356 Other FY2017 FY2018 FY2019 FY2017 FY2018 FY2019 Blended ARPU Ca
Slide 8: High-speed broadband growth
High-speed broadband growth Consumer broadband subscribers Mobile broadband subscribers1 ‘000 ‘000 1 657 6 377 1 529 1 408 2 637 3 627 5 281 1 913 2 753 75.8% Smartphone users 724 874 1 096 Data only 874 1 096 724 FY2017 FY2018 FY2019 Mobile broadband traffic 152 201 Petabytes 210 362 532 454 8.4% 3
Slide 9: Data-led propositions
Data-led propositions FREEme SMARTBROADBAND UNLIMITED HOME • 86% of postpaid customers on • FWA/MiFi customers grew 25% • In excess of 60% of base utilising FreeMe • Extension of VoLTE across the the uncapped products • 7.6 million FreeMe bundles sold LTE portfolio • Expansion of Unlimited Home prod
Slide 10: Drive adjacencies via content
Drive adjacencies via content • Only Netflix certified Android Set Top Box in SA • Most attractive entertainment data bundles • Live broadcast of the 94.7 Cycle Challenge • VS Sport channel launched on Telkom LIT • Content featured includes VS Masters final 01 | BUSINESS PERFORMANCE Telkom Annual Re
Slide 11: Key strategic focus areas
Key strategic focus areas Grow connectivity Improve IT services profitability Reduce cost to serve Telkom Annual Results Presentation 2019 11
Slide 12: Operating environment
Operating environment Industry margins Cost to serve </> Market Challenges Client churn Client demands 01 | BUSINESS PERFORMANCE Telkom Annual Results Presentation 2019 12
Slide 13: Stabilised BCX
Stabilised BCX B-BBEE Level 1 New Leadership Steady financial Reviewed go-to market Improved Operational Focused on Customer Team improvement model efficiencies Centricity 01 | BUSINESS PERFORMANCE Telkom Annual Results Presentation 2019 13
Slide 14: Public sector and SMME under pressure
Public sector and SMME under pressure Revenue by vertical segments Public sector remains Improving corporate under pressure performance 20 263 (3.4%) 19 580 33% of revenue 47% of revenue 701 26.4% 886 Public sector spending Growth in retail 3 496 (14.3%) 2 996 delayed in provincial and related to fi
Slide 15: Performance against key strategic focus areas
Performance against key strategic focus areas • 54% of revenue Grow • 41% increase in next generation voice offering connectivity • 44% growth in next generation data due to Metro Ethernet migration • Offset by 15% decline in legacy voice and 19% decline in legacy data • 46% of revenue Improve profi
Slide 16: Managing cost efficiencies
Managing cost efficiencies 16 956 (2.9%) 16 458 844 (13.3%) 1 106 (14.8%) 732 942 • Focused selling, general and admin cost 2 051 containment to ensure stable cost base 3.4% 2 121 • Headcount reduction of 13.4% 4 777 (5.0%) 4 538 • Reduction in direct cost and payment to other operators linked to vo
Slide 17: Key strategic focus areas
Key strategic focus areas Modernise the network Commercialise the network Transforming service delivery Telkom Annual Results Presentation 2019 17
Slide 18: Network modernisation – driven by demand
Network modernisation – driven by demand Customer Products Access network to Local connectivity National connectivity Systems and & Services customers and clients between smaller towns between major centres Applications - FTTx - xDSL - Voice - FLLA - LTE & LTE-A Backhaul Core - Mobile Voice Aggregat
Slide 19: Our optical footprint
Our optical footprint 4.1% 6.8% 20.7% 8.8% Fibre deployed Fibre to the cabinet Fibre to the home Fibre to the premises 163 800 km 2 390 235 430 659 2.8 million 01 | BUSINESS PERFORMANCE Telkom Annual Results Presentation 2019 19
Slide 20: Connectivity gateway
Connectivity gateway Fixed line broadband data consumption1 Petabytes 999 828 Ethernet Fibre to the Homes business base stations connected 617 37 476 7 018 165 373 20.7% services connected connected FY2017 FY2018 FY2019 connectivity rate of 55.6% 3.3% 38.4% 1Access links 01 | BUSINESS PERFORMANCE Te
Slide 21: Data eco-system transformation
Data eco-system transformation Data solutions evolution Broadband connection evolution Legacy technology Copper access1 Services Connections 132 340 963 881 115 900 869 070 108 358 730 676 6.5% 15.9% FY2017 FY2018 FY2019 FY2017 FY2018 FY 2019 Next Generation Ethernet technology Fibre access Services
Slide 22: Improved service delivery
Improved service delivery 19% 29% 25% improvement on new improvement in improvement on generation access broadband fault rate average time to repair average time to install 01 | BUSINESS PERFORMANCE Telkom Annual Results Presentation 2019 22
Slide 23: Efficiency through digitisation
Efficiency through digitisation 21% 3% 28% 6.1 million reduction in improvement in reduction in fault less kilometres re-dispatch rate interaction NPS assurance visits travelled 01 | BUSINESS PERFORMANCE Telkom Annual Results Presentation 2019 23
Slide 24: Key strategic focus areas
Key strategic focus areas Optimise and grow the mast & tower portfolio Commercialise the property portfolio Enhance building operation efficiencies Telkom Annual Results Presentation 2019 24
Slide 25: M&T and property portfolio
M&T and property portfolio M&T portfolio Property portfolio • Portfolio made up of 6 500 towers spread Portfolio summary Telkom Properties across South Africa • 1 300 towers have multiple tenancy No. Properties 1 332 revenue – 88% of revenue is from MNO’s • 2 200 towers are well located and capable
Slide 26: Unlocking value
Unlocking value Optimise the mast & Commercialise the Enhance building operation tower portfolio property portfolio efficiencies • Optimise revenue for the multi- • Segment portfolio into core • Optimise space utilisation and tenanted towers operations, development and occupancy costs • Grow revenue
Slide 27: Robust performance
Robust performance Total revenue growth Total EBITDA growth Rm Rm 685 314 118.2% 1 169 944 FY2018 FY2019 EBITDA margin 58.6% 23.8% 33.3% 25.3ppts FY2018 FY2019 FY2018 FY2019 01 | BUSINESS PERFORMANCE Telkom Annual Results Presentation 2019 27
Slide 28: M&T portfolio driver of growth
M&T portfolio driver of growth Revenue growth Total tenant growth1 Rm Number of leases 930 9 013 687 35.4% 8 157 10.5% FY2018 FY2019 FY2018 FY2019 EBITDA growth New site development plans growth Rm Number of sites 350 365 44.8% 252 18x 20 FY2018 FY2019 FY2018 FY2019 1Tenancy calculations exclude Ope
Slide 29: Key strategic focus areas
Key strategic focus areas Stablise the business Rationalise and optimise costs Relaunch Internet Yellow Pages Telkom Annual Results Presentation 2019 29
Slide 30: Stabilise the business
Stabilise the business Focus areas Cost optimisation Internet platform • Workstream driven approach to • 29%1 reduction in operating • Relaunched updated stabilise the business expenditure and direct costs Yellow Pages site on 4 September • New operating model • 44% headcount reduction implemented •
Slide 31: Human and Social Capital
Human and Social Capital 2 Telkom Annual Results Presentation 2019 31
Slide 32: Investing in our people
Investing in our people Safety Training & Talent improvements development management 15% improvement in total Training & development spend Talent mapping and succession recordable injury rate of R815 million over the planning of 2 792 management 20% improvement in lost time past 3 years employees in
Slide 33: Growing skills, enabling ICT entrepreneur
Growing skills, enabling ICT entrepreneur Skills FutureMakers To address the skills shortage in the ICT sector Enterprise and Supplier Development Fund (since inception 2015) WeThinkCode1 R381 million 133 sponsored learners with R20 million investment invested into FutureMakers Data Science Academy2
Slide 34: Financial Overview
Financial Overview 3 Telkom Annual Results Presentation 2019 34
Slide 35: Investment strategy yielding positive results
Investment strategy yielding positive results New revenue Fixed business Strong data traffic streams driving under pressure growth growth 3 03 | FINANCIAL OVERVIEW Telkom Annual Results Presentation 2019 35
Slide 36: Solid underlying group performance
Solid underlying group performance Rm FY2019 FY2018 % Operating Revenue1 41 774 39 661 5.3 Total expenses (excl. depreciation) 31 184 29 846 (4.5) EBITDA 11 309 10 422 8.5 Headline earnings per share (cents) 722.4 589.3 22.6 Capital investments 7 674 7 909 (3.0) Free cash flow 534 473 12.9 All comme
Slide 37: Mobile main driver of growth
Mobile main driver of growth Revenue movement Rm 118 (36) (174) 41 774 394 39 661 (1 875) 3 686 5.3% R2 113m FY2018 Mobile Information Gyro Other revenue Fixed data Fixed voice FY2019 Revenue technology Revenue During the year we restated the prior year revenue by R1 357 million. The adoption of IFR
Slide 38: New revenue streams grow
New revenue streams grow 14.3% 58.3% 6.2% 13.3% 13 117 2.9% 11 242 29.7% 8 155 6 370 6 764 5 151 5 482 4 754 3 043 3 130 1 574 2 041 Mobile service revenue Information Fixed voice and Traditional data New data products Other data products technology interconnection products FY2018 Fixed data 1.7% FY
Slide 39: Revenue evolution underpinned by investment
Revenue evolution underpinned by investment 1% 8% 7% 3% 27% 16% 32% FY2013 56% FY2019 Fixed voice Fixed data 26% Mobile 24% IT Other 3 03 | FINANCIAL OVERVIEW Telkom Annual Results Presentation 2019 39
Slide 40: Cost growth in line with inflation
(R1 338m) Cost growth in line with inflation 4.5% 31 184 Rm 78 (46) (94) 29 846 334 378 (628) 1 316 20.7% 1.4% Direct expenses Operating expenses FY2018 Customer Payments to Maintenance Operating leases Other operating Service fees Employee FY2019 1 3 acquisition cost* other operators expenses** 2 e
Slide 41: Strong EBITDA growth
Strong EBITDA growth EBITDA movement Rm 312 112 11 309 10 422 (1 650) 2 113 R887m 8.5% FY2018 Operating revenue Operating expenses*1 Other** 2 Direct expenses FY2019 EBITDA income EBITDA 3 1Excludes the impact of VSP, VERP and section 189 costs of R728 million 2Includes interest on debtors 03 | FINA
Slide 42: Underlying headline earnings surge
Underlying headline earnings surge Rm 20.3% 3.1% 3 593 4.2% 3 080 2 795 30 (2) (13) 513 270 Reported basic Write-offs IFRS 5 Profit on sale of Tax impact Reported VSP, VERP and Adjusted earnings remeasurement assets headline section 189 costs headline earnings earnings11 3 1Excludes the impact of VS
Slide 43: Investing for growth
Investing for growth FY2019 FY2018 % Mobile 3 011 2 319 29.8 Fibre 1 216 2 112 (42.4) Core network 1 172 902 29.9 OSS/BSS programme 223 294 (24.1) Network rehabilitation/sustainment 261 303 (13.9) Service on demand 1 195 1 292 (7.5) Other and subsidiaries 596 687 (13.2) Total capital expenditure 7 6
Slide 44: Strong balance sheet
Strong balance sheet FY2019 FY2018 % FY2019 FY2018 % Cash balances 1 428 2 527 (43.5) Finance charges 885 884 (0.1) Interest bearing debt Investment income (185) (186) (0.5) Opening balance 9 397 6 268 (49.9) Net finance charges 700 698 (0.3) Net Funding raised 702 2 995 76.6 Fair value loss/(gain)
Slide 45: Underlying FCF improves
Underlying FCF improves Free cash flow (FCF) movement Rm FY2019 FY2018 % Cash generated from operations 8 903 10 113 (12.0) Interest received 441 310 42.3 Finance charges paid (847) (722) (17.3) Taxation paid (945) (1 472) 35.8 Cash generated from operations before dividend paid 7 552 8 229 (8.2) Ca
Slide 46: Disciplined capital allocation
Disciplined capital allocation Cash management Rm 7 552 (2 162) (1 846) 6 071 (5 422) 2 527 717 62 1 428 FY2018 Cash Cash generated Maintenance Dividend paid Net cash before Remaining Net financing Other investing FY2019 Cash balance from and regulatory investing for capex activities** 2 activities
Slide 47: Shareholder rewards
Shareholder rewards Dividend Total shareholder return (TSR) cents % 362 355 FY2019 44.3 249 237 112 118 FY2019 FY2018 Source: Interim Final Bloomberg Dividend declared in line with our dividend policy of (21.3) (21.8) 3 60% of Headline Earnings Telkom MTN Vodacom 03 | FINANCIAL OVERVIEW Telkom Annua
Slide 48: Progress against guidance
Progress against guidance FY2019 – FY2021 FY2019 Guidance Actual Operating revenue Mid-single digit 5.3% EBITDA margin 24% - 27% 27.1% Capex to revenue 16% - 20% 18.4% Net debt to EBITDA (times) ≤1 0.8 3 03 | FINANCIAL OVERVIEW Telkom Annual Results Presentation 2019 48
Slide 49: IFRS 16 impact
IFRS 16 impact Category IAS 17 (Previous Standard) IFRS 16 (New Standard) Forecasted impact1 Balance Sheet • Lease smoothing • Recognise right of use of asset • R4.0bn - R4.5bn receivable/payable • Recognise lease liability • R4.0bn - R4.6bn Initial take on balances Income • Operating lease on strai
Slide 50: Revised medium-term guidance
Revised medium-term guidance Targets Operating revenue Mid - single digit EBITDA Mid - single digit Capex to revenue 16% - 20% Net debt to EBITDA (times) 1 - 1.2 3 Note: Excluding corporate action Based on initial IFRS 16 take on balances 03 | FINANCIAL OVERVIEW Telkom Annual Results Presentation 20
Slide 51: Conclusion
Conclusion 4 Telkom Annual Results Presentation 2019 51
Slide 52: Remarkable achievements under his leadership
Remarkable achievements under his leadership Established Independent Board with diverse skills and expertise Reset relationship with key stakeholders Turnaround Mobile business and acquired BCX to diversify revenue mix New operating model established with diversified portfolio Outgoing Chairman Tota
Slide 53: Telkom SA SOC Limited will host a Capital Market Day
Telkom SA SOC Limited will host a Capital Market Day Wednesday, 29 May 2019 Protea Hotel Johannesburg Balalaika Sandton Photo by Protea Hotel Balalaika Sandton 4 04 | CONCLUSION Telkom Annual Results Presentation 2019 53
Slide 54: Thank you Q&A
Telkom SA SOC Ltd Thank you Q&A telkomir@telkom.co.za Telkom Annual Results Presentation 2019 54