Telkom Sa Soc Ltd. · JSE:TKG
Telkom Sa Soc — H1 FY2017 Earnings Presentation
79 slides from Telkom Sa Soc's earnings presentation, Nov 15, 2016
Slide 1: Group Interim Results
Group Interim Results for the six months ended 30 September 2016
Slide 2: Key indicators
2 Overview Group interim results 2016 3 Telkom SA SOC Limited All commentary, messaging and indicators in this report exclude voluntary (Registration number 1991/005476/30) early retirement and severance package costs of R1 523 million and the JSE share code: TKG ISIN: ZAE000044897 related tax impac
Slide 3: Index
Index 01 Overview 6 02 The information contained in this Operational data 26 document is also available on Telkom’s investor relations website www.telkom.co.za/ir 03 Telkom SA SOC Ltd Financial performance 28 (Registration number 1991/005476/30) JSE share code: TKG ISIN: ZAE000044897 04 Group secret
Slide 4: Message from Group CEO
6 Group interim results 2016 7 Johannesburg, South Africa – 15 November 2016, Telkom SA SOC Limited (JSE: TKG) today announced Group interim results for the period ended 30 September 2016. Message from Group CEO: convergence platform for our consumer and Sipho Maseko enterprise business. This conver
Slide 5: Financial capital
8 Overview Group Group interiminterim resultsresults 2016 2016 9 Financial capital Capex deployed to modernise our network Capex increased 55.8 percent to R3.6 billion with capex to revenue of 18.0 percent at the top end of our guidance. The largest portion of our capex was deployed to revenue-gener
Slide 6: Productive capital
10 Overview Group interim results 2016 11 Productive capital Consumer business driven by the FreeMe continues to be a very popular performance of mobile business offering with customers and has performed The mobile business recorded strong service even better than our initial expectations. revenue o
Slide 7: Productive capital (continued)
12 Overview Group interim results 2016 13 Productive capital (continued) Fibre to the home increased to 144 512 homes and BCX: Integration realising synergies 850 gated communities. The current connectivity rate is In the first half of the year, the Enterprise division of Telkom above 13 percent and
Slide 8: Human capital
14 Overview Group interim results 2016 15 Human capital The Collaborative Partnership Agreement (CPA) signed with two of our three unions earlier this year included a ground-breaking commitment to a new employee incentive scheme for bargaining unit employees which focuses on the impact an individual
Slide 9: Intellectual capital
16 Overview Group interim results 2016 17 Intellectual capital The platforms for growth After three years of working on the new We are further redesigning processes that Operations Support System and Business will simplify and improve the quality of Support System (OSS/BSS) solution for interactions
Slide 10: Natural capital
18 Overview Group interim results 2016 19 Natural capital Telkom continues to invest in renewable and sustainable forms of natural resources management. Of particular note in this period has been a 3MW solar farm going live at Telkom’s Head Office, the largest privately owned installation of its kin
Slide 11: Social and relationship capital
20 Overview Group interim results 2016 21 Social and relationship capital The Foundation is working with the FutureMakers programme to increase its investment fund. Our business incubation spaces support more than a 1 000 reach of young people exposed to coding entrepreneurs in the technology and Gr
Slide 12: Outlook
22 Overview Group interim results 2016 23 Outlook Despite the increased competition in the market, we are in a good position to execute on our strategy. However the tough economic environment presents a challenge, as BCX, including the Enterprise business, is particularly impacted by these adverse c
Slide 13: Dividend policy
24 Overview Group interim results 2016 25 Dividend policy Results from continuing operations The board has decided to amend the current dividend policy to a total dividend distribution of The group recorded a reported profit after tax of R1 821 million (September 2015: 60 percent of headline earning
Slide 14: Operational data
26 Group interim results 2016 27 September September 2016 2015 % Fixed broadband subscribers1 1 018 405 1 015 307 0.3 Mobile broadband subscribers 2 275 513 1 575 038 44.5 Closer subscribers 821 246 839 158 (2.1) Internet all access subscribers2 561 581 568 553 (1.2) Fixed access lines (‘000)3 3 090
Slide 15: Group operating revenue
28 Group interim results 2016 Overview 29 Group operating revenue In ZAR millions September September 2016 2015 % Voice and subscriptions 7 485 7 686 (2.6) Fixed-line usage 2 802 3 079 (9.0) Fixed-line subscriptions 4 163 4 207 (1.1) Mobile voice and subscriptions 520 400 30.0 Interconnection 531 59
Slide 16: Group operating revenue (continued)
30 Financial performance Group interim results 2016 31 Group operating revenue (continued) Group operating revenue increased 20.6 percent to R20 237 million (September 2015: R16 782 million), driven by the acquisition of BCX and higher mobile revenue. This was partly offset by the decline in fixed-l
Slide 17: Group other income and direct expenses
32 Financial performance Group interim results 2016 33 Group other income Telkom direct expenses In ZAR millions September September In ZAR millions September September 2016 2015 % 2016 2015 % Telkom 331 544 (39.2) Payments to other operators 1 254 1 383 9.3 Business Connexion 57 5 1 040.0 Mobile ne
Slide 18: Telkom operating expenditure
34 Financial performance Group interim results 2016 35 Telkom operating expenditure Depreciation increased 1.5 percent to R2 598 million (September 2015: R2 559 million) due to accelerated depreciation as we intensify our roll-out of fibre and LTE and higher asset write- offs. The group reassessed t
Slide 19: Investment income, taxation, financial position
36 Overview Financial performance Group interim results 2016 37 Investment income Taxation Consolidated statement of financial position Investment income consists of interest The normalised tax expense decreased Our Group’s capital structure remains strong. received on short-term investments slightl
Slide 20: Group capital expenditure
38 Financial performance Group interim results 2016 39 Group capital expenditure Fibre expenditure of R929 million (September 2015: R343 million) has been operational efficiencies and will support the launch of next generation products. aligned to the company strategy and there is Our capital expend
Slide 21: Annexure A
40 Financial performance 41 Annexure A Below are the results of BCX for the six months ended 30 September 2016 and one month ended 30 September 2015 that have been consolidated before inter-group eliminations: September September 2016 2015 Operating revenue 4 419 491 Cost of sales* 3 246 350 Net ope
Slide 22: Statement of profit or loss and other comprehensive income
42 Condensed consolidated interim financial statements Group interim results 2016 43 Condensed consolidated interim statement of profit or loss and other comprehensive income for the six months ended 30 September 2016 Reviewed Reviewed Reviewed Reviewed Six months Six months Six months Six months en
Slide 23: Statement of financial position
44 Condensed consolidated interim financial statements Group interim results 2016 45 Condensed consolidated interim statement of financial position at 30 September 2016 Reviewed Audited Reviewed Audited Six months Six months Year ended Year ended ended ended 30 September 31 March 30 September 31 Mar
Slide 24: Statements of changes in equity and cash flows
46 Condensed consolidated interim financial statements Group interim results 2016 47 Condensed consolidated interim Condensed consolidated interim statement of changes in equity statement of cash flows for the six months ended 30 September 2016 for the six months ended 30 September 2016 Reviewed Rev
Slide 25: Notes to the financial statements
48 Condensed consolidated interim financial statements Group interim results 2016 49 Notes to the condensed consolidated interim financial statements for the six months ended 30 September 2016 1. Corporate information Significant accounting judgements, estimates and assumptions Telkom SA SOC Limited
Slide 26: Notes: segment information 2016
50 Condensed consolidated interim financial statements Group interim results 2016 51 Notes to the condensed consolidated interim financial statements (continued) for the six months ended 30 September 2016 3. Segment information (continued) Openserve Consumer Enterprise BCX Other Eliminations Consoli
Slide 27: Notes: segment information 2015
52 Condensed consolidated interim financial statements Group interim results 2016 53 Notes to the condensed consolidated interim financial statements (continued) for the six months ended 30 September 2016 3. Segment information (continued) Openserve Consumer Enterprise BCX Other Eliminations Consoli
Slide 28: Notes: revenue and operating expenses
54 Condensed consolidated interim financial statements Group interim results 2016 55 Notes to the condensed consolidated interim financial statements (continued) for the six months ended 30 September 2016 4. Total revenue Reviewed Reviewed 5. Operating expenses Reviewed Reviewed Six months Six month
Slide 29: Notes: operating expenses and earnings per share
56 Condensed consolidated interim financial statements Group interim results 2016 57 Notes to the condensed consolidated interim financial statements (continued) for the six months ended 30 September 2016 5. Operating expenses (continued) Reviewed Reviewed 7. Earnings per share Reviewed Reviewed Six
Slide 30: Notes: capital additions and employee benefits
58 Condensed consolidated interim financial statements Group interim results 2016 59 Notes to the condensed consolidated interim financial statements (continued) for the six months ended 30 September 2016 8. Capital additions and disposals Reviewed Audited 9. Employee benefits Reviewed Audited Six m
Slide 31: Notes: inventories and acquisitions
60 Condensed consolidated interim financial statements Group interim results 2016 61 Notes to the condensed consolidated interim financial statements (continued) for the six months ended 30 September 2016 11. Inventories Reviewed Audited 13. Acquisition and disposal of subsidiaries September Six mon
Slide 32: Notes: acquisition of subsidiaries
62 Condensed consolidated interim financial statements Group interim results 2016 63 Notes to the condensed consolidated Anco provides innovative business solutions based on information and communication technology and runs ICT systems and manages products, services and solutions for a wide interim
Slide 33: Notes: cash and financial risk management
64 Condensed consolidated interim financial statements Group interim results 2016 65 Notes to the condensed consolidated interim financial statements (continued) for the six months ended 30 September 2016 14. Net cash and cash equivalents Reviewed Audited 15. Financial risk management (continued) 15
Slide 34: Notes: fair value hierarchy and share capital
66 Condensed consolidated interim financial statements Group interim results 2016 67 Notes to the condensed consolidated interim financial statements (continued) for the six months ended 30 September 2016 15. Financial risk management (continued) 16. Share capital Reviewed Audited Six months 15.3 Fa
Slide 35: Notes: reserves and interest-bearing debt
68 Condensed consolidated interim financial statements Group interim results 2016 69 Notes to the condensed consolidated interim financial statements (continued) for the six months ended 30 September 2016 17. Non-distributable reserves Reviewed Audited 18. Interest-bearing debt Reviewed Audited Six
Slide 36: Notes: payables and contingencies
70 Condensed consolidated interim financial statements Group interim results 2016 71 Notes to the condensed consolidated interim financial statements (continued) for the six months ended 30 September 2016 20. Trade and other payables Reviewed Audited 22. Contingencies Six months ended Year ended CON
Slide 37: Notes: contingencies and related parties
72 Condensed consolidated interim financial statements Group interim results 2016 73 Notes to the condensed consolidated interim financial statements (continued) for the six months ended 30 September 2016 22. Contingencies (continued) 23. Related parties Reviewed Reviewed Audited Six months Six mont
Slide 38: Notes: related parties and significant events
74 Condensed consolidated interim financial statements Group interim results 2016 75 Notes to the condensed consolidated interim financial statements (continued) for the six months ended 30 September 2016 23. Related parties (continued) Reviewed Reviewed Audited 24. Significant events and transactio
Slide 39: Notes: events after the reporting date
76 Condensed consolidated interim financial statements Group interim results 2016 77 Notes to the condensed consolidated interim financial statements (continued) for the six months ended 30 September 2016 25. Events after the reporting date Appointment of non-executive director Telkom announced on 2
Slide 40: Telkom
Telkom
Slide 41: Group Interim Results
Telkom SA SOC Limited Group Interim Results For the six months ended 30 September 2016
Slide 42: Contents
Contents 1 Introduction 3 Financial overview 2 Business performance 4 Conclusion
Slide 43: Introduction
1 Introduction
Slide 44: Delivering against difficult trading environment
Delivering against difficult trading environment ECONOMIC COMPETITIVE REGULATORY ENVIRONMENT LANDSCAPE ENVIRONMENT • Limited GDP growth • Increased number of fibre • Spectrum • Consumers under pressure players • ICT Policy • Volatile currency • Consolidation in the market • Cost to communicate • OTT
Slide 45: Customer Experience remains a key priority
Customer Experience remains a key priority SYSTEM UPGRADES PROCESSES STORE INITIATIVES CALL CENTRES • Reduce time to • Fulfilment • Queue management • Improved First Time capture, process and • Assurance system Resolutions vetting • Customer call back • Reduced call volumes • Billing • Paperless app
Slide 46: Business performance
2 Business performance
Slide 47: Group financial highlights
Group financial highlights Operating Mobile service EBITDA revenue up revenue up Margin 20.6% 36.7% 26.1% Interim HEPS up EBITDA up Dividend of 19.7% * 4.6%* 131 cps *The prior corresponding period numbers exclude voluntary early retirement and severance packages of R1 523 million and the related ta
Slide 48: Openserve
N open)serve
Slide 49: SA's leading and largest broadband and data provider
SA’s leading and largest broadband and data provider Openserve’s brand positioning is about We provide a diverse connections. Connecting wholesale product technologies, businesses, portfolio over our high people and the world quality open access around us. network. We believe in a market that encour
Slide 50: Leading in the fibre market
Leading in the fibre market Fibre to the Fibre to the Openserve has passed over Home Business 2 million premises providing high speed broadband connectivity using fibre 144 512 42 176 with connectivity end points rate of 13% terminating Fibre to the Fibre to the Cabinet >1.8 m ˷5 600 Base Stations h
Slide 51: Improved network consumption
Improved network consumption Fixed line broadband1 TB +38.2% 350 000 300 000 250 000 200 000 150 000 296 452 100 000 214 557 160 196 50 000 0 H1 2015 H1 2016 H1 2017 1. Access links Telkom H1 17 | 15 November 2016 11 11
Slide 52: Business Connexion
Is your business ready for tomorrow’s Business Connexion customers? Meet the future today with Telkom and Business Connexion.
Slide 53: Africa's premium end to end digital partner
Africa’s premium end to end digital partner Unmatched Data Centres Unrivalled ICT Solution Set Industry Vertical Leadership • 3 Tier 1V designed data • Proven ICT capabilities • Market leader in Retail, centres • Market leadership position Mining, Manufacturing, on IT and telecommunication Banking a
Slide 54: Synergies realised
Synergies realised Key achievements 32% 27% • Launched Cisco Hosted Collaboration solution • Launched SAP HANA Enterprise Cloud Services growth in Metro-Ethernet IT Business revenue service revenue • Creation of bundled solutions including fixed, wireless, mobile connectivity and IT services • Award
Slide 55: Consumer
Consumer
Slide 56: Initiatives underpinning good performance
Initiatives underpinning good performance MOBILE FIXED SMALL BUSINESS • Product innovation - FreeMe, • Re-engineering of processes • Launch of Voice and Data Smart broadband for simplicity Failover • Extension of distribution • Upselling the DSL base faster • Always-on to Small Business channels and
Slide 57: A good foundation for growth
A good foundation for growth Mobile EBITDA Mobile service revenue +37% Rm R’000 400 214 2000 1 594 200 1500 1 166 0 830 1000 -200 H1 2015 H1 2016 H1 2017 -400 -37 500 -600 H1 2015 0 -385 H1 2015 H1 2016 H1 2017 Mobile customer growth ‘000 +42% Prepaid Postpaid 4000 3000 976 2000 429 681 1000 2 237 1
Slide 58: Broadband strategy underpins solid performance
Broadband strategy underpins solid performance Mobile broadband revenue +43% R’000 1 200 1 018 1 000 800 711 600 422 400 200 0 H1 2015 H1 2016 H1 2017 Mobile broadband customers ‘000 +44% 3 000 Mobile broadband Smartphone users 2 000 670 458 1 000 343 1 605 1 117 711 0 H1 2015 H1 2016 H1 2017 Telkom
Slide 59: Fixed and Small Business
Fixed and Small Business FIXED BUSINESS • Significant demand for fibre • Migration from ADSL/VDSL to fibre SMALL BUSINESS • Fail Over • Always On • Smart Virtual Office solution Telkom H1 17 | 15 November 2016 19
Slide 60: Focusing on attracting and growing talent
Focusing on attracting and growing talent REWARDS RECRUITMENT & TRAINING LEADERSHIP & DEVELOPMENT • Performance Pay – up to 12% • Bright Young Minds • Bursaries • Performance Management • Internships • Female Leadership • All employees are shareholders • Training - Retail staff and • Development pla
Slide 61: Foundation FutureMakers
Empowering youth through education and entrepreneurship Foundation FutureMakers Main focus is on Education Enterprise and Supplier Development Program 43 20 R24.4m schools R117m Black owned businesses connected Invested into allocated to through our IFT FutureMakers education programme 543 1 000 Tea
Slide 62: Financial overview
3 Financial overview
Slide 63: Developments in the first half of FY2017
Developments in the first half of FY2017 Mobile Mobile EBITDA profitability BCX inclusion for six months BCX Capex deployment 185% growth in capex deployment to priority areas Dividend policy and interim dividend Interim dividend Telkom H1 17 | 15 November 2016 23
Slide 64: Normalised earnings
Normalised earnings Sept 2016 Sept 2015 % Profit for the period 1 821 606 200.5 VERP/VSP cost - 1 523 - Tax on VERP/VSP cost - (446) - Normalised profit for the period 1 821 1 683 8.2 Normalised headline earnings per share 336.0 280.6 19.7 Telkom H1 17 | 15 November 2016 24
Slide 65: Key financial indicators
Key financial indicators Sept 2016 Sept 2015 % Operating revenue 20 237 16 782 20.6 Net revenue 13 849 13 404 3.3 Operating expenses 8 978 8 929 (0.5) ~ EBITDA 5 272 5 040 4.6 Capital investments 3 639 2 335 55.8 Normalised free cash flow 241 1 445 (83.3) Telkom H1 17 | 15 November 2016 25
Slide 66: Quality of earnings
Quality of earnings Sept 2016 Sept 2015 % Profit for the period 1 821 606 200.5 Gain from property, plant and equipment (143) (282) 49.3 Severance package cost - 1 523 - (Profit)/Loss of the sinking fund (90) 60 (250.0) Tax on VERP/VSPs - (446) - Adjusted profit for the period 1 588 1 461 8.7 Telkom
Slide 67: EBITDA
EBITDA Transformation initiatives bearing fruit R232m Normalised EBITDA movement 4.6% Rm 66 115 119 * (349) 445 (164) 5 040 5 272 Sept 2015 EBITDA SG&A Other income Net revenue Employee Operating leases Service fees Sept 2016 EBITDA expenses *Company reduction of R608 million Telkom H1 17 | 15 Novem
Slide 68: Growth in strategic focus areas
Growth in strategic focus areas Net revenue movement R445 m Rm 3.3% 49 85 86 96 255 (332) 320 (73) (41) 13 404 13 629 13 849 Sept 2015 Voice and Trudon Other BCX Mobile Cost of sales PTO Data CPE Sept 2016 Net revenue inter- Net revenue connection Telkom H1 17 | 15 November 2016 28
Slide 69: Retaining traditional revenue while focusing on growth
Retaining traditional revenue while focusing on growth Rm 5.0% 7 829 7 440 1.7% 5 012 5 097 639.7% 3 617 36.7% 1 594 1 166 489 Fixed voice and subscriptions Data Mobile service revenue BCX 2015 2016 Telkom H1 17 | 15 November 2016 29
Slide 70: Growth in subscriber and data volumes
Growth in subscriber and data volumes Metro-Ethernet Mobile broadband Subscribers ‘000 Subscribers ‘000 34.3% 44.5% 3 090 4 102 5 509 1 054 1 575 2 276 Sept 2014 Sept 2015 Sept 2016 Sept 2014 Sept 2015 Sept 2016 Broadband traffic volumes Mobile data traffic volumes (Tbytes) (Tbytes) 134.7% 38.2% 160
Slide 71: Reduction in operating cost (Telkom Company only)
Reduction in operating cost (Telkom Company only) R761 million year on year reduction Rm 8.8% 8 678 7 917 14.6% 6.6% 4 162 11.1% 27.5% 3 554 2 497 2 663 1 441 1 281 578 419 Total operating costs Employee expenses SG&A Service fees Operating leases (Excl depreciation) Sept 2015 Sept 2016 Telkom H1 17
Slide 72: Increased capital expenditure in priority areas
Increased capital expenditure in priority areas Sept 2016 Sept 2015 % Fibre 929 343 170.8 Mobile 758 201 277.1 OSS/BSS programme 325 162 100.6 Network rehabilitation/sustainment 192 167 15.0 Service on demand 658 707 (6.9) Core network growth 392 87 350.6 Telkom H1 17 | 15 November 2016 32
Slide 73: Strong cash position – Platform to enable growth
Strong cash position – Platform to enable growth Sept 2016 Sept 2015 % Cash sources Opening cash balance 2 542 3 642 (30.2) Cash flow from operating activities 3 266 2 029 61.0 Significant cash applications Dividend paid (1 447) (1 329) (8.9) BCX acquisition - (2 654) - Cash paid on capital expendit
Slide 74: Guidance
Guidance F2017 H1 F2017 F2018 guidance (A) guidance Net revenue Modest growth +3.3% ✓ Modest growth EBITDA margin 23% - 25% 26.1% ✓ 23% - 25% Capex to revenue 15% - 18% 18.0% ✓ 14% - 17% Net debt to EBITDA ≤1 0.3 ✓ ≤1 Mobile EBITDA breakeven Achieved R214 million ✓ N/A Dividend policy: Annual divide
Slide 75: Conclusion
4 Conclusion
Slide 76: Integration of Telkom Enterprise with BCX
Integration of Telkom Enterprise with BCX PEOPLE RESOURCES PRODUCT OFFERING • Led by Isaac Mophatlane • Data Centres managed by BCX • Offer end to end solutions • New Exco • Group IT services to be • Converged products and managed by BCX services • One sales force team • Central Treasury function •
Slide 77: Focus strategic areas
Focus strategic areas • High speed • Modernise the • Cloud Computing • Expanding Omni- broadband growth - network • Unified Channel offerings LTE & Fibre • Commercialise the Communications and • Establish E-Commerce • Mobile growth network Collaboration market place through disruptive • Grow broadba
Slide 78: In closing
In closing Processes Culture Technology Finance Telkom H1 17 | 15 November 2016 38
Slide 79: Thank you
Thank you Questions? telkomir@telkom.co.za