Telkom Sa Soc Ltd. · JSE:TKG
Telkom Sa Soc — H1 FY2022 Earnings Presentation
48 slides from Telkom Sa Soc's earnings presentation, November 2021
Slide 1: Interim Results Presentation
Telkom SA SOC Ltd Interim Results Presentation For the six months ended 30 September 2021 Interim Results Presentation FY22 1
Slide 2: Operating environment
Operating environment 1 Interim Results Presentation FY22 2
Slide 3: Tough trading environment
Tough trading environment Delayed economic Competitive Regulatory recovery landscape uncertainty • Sluggish economic growth • Increased competitive • Initial Spectrum ITA set aside. activities in the ICASA expects to licence spectrum • Consumers under mobile space in March 2022 significant pressure
Slide 4: Productivity in a Covid-19 environment
Productivity in a Covid-19 environment Support employee Hybrid work wellness policy • Mental and physical wellbeing of employees • Allows employees to mainly work remotely • Developed a proactive Covid-19 vaccination • Definition of workplace evolved to include framework company premises and employe
Slide 5: Business performance
Business performance 2 Interim Results Presentation FY22 5
Slide 6: Solid operational performance
Solid operational performance 18.3% 10.3% 54.2% Active mobile Mobile broadband Homes passed customers customers with fibre 16.3m 10.6m 707k 59% 56% 1.55x New generation fixed Tenants are external Tenancy broadband customers customers ratio Interim Results Presentation FY22 6
Slide 7: Key strategic focus areas
Key strategic focus areas Accelerate mobile growth Drive high speed broadband Network expansion Interim Results Presentation FY22 7
Slide 8: Solid performance against strong prior year
H1 FY20 9 398 2 103 11 501 ‘000 growth H1 FY21 11 077 2 610 13 687 Subscriber H1 FY22 13 696 2 563 16 259 18.8% Pre-paid Post-paid H1 FY20 61 178 82 Rm ARPU H1 FY21 84 211 113 H1 FY22 67 217 92 17.9% Pre-paid Post-paid H1 FY20 3 907 1 695 5 602 Rm H1 FY21 6 010 2 272 8 282 revenue Solid performance
Slide 9: Monetisation of broadband traffic
Monetisation of broadband traffic Mobile data Total mobile Mobile revenue broadband subscribers broadband traffic 6 374 Post-paid Peta- Rm ‘000 6 010 bytes Pre-paid 2 639 2 602 3 907 10 642 9 644 482 479 7 822 1 705 265 3 735 3 408 6.1% 10.3% 1.0% 2 197 H1 FY20 H1 FY21 H1 FY22 H1 FY20 H1 FY21 H1 FY2
Slide 10: Ongoing network investment
Ongoing network investment Mobile sites 4.5G integrated Site integrated sites backhaul Fibre Ratio 5 646 79% 6 910 6 159 5 476 3 966 3 350 73% 71% 12.2% 42.4% H1 FY20 H1 FY21 H1 FY22 H1 FY20 H1 FY21 H1 FY22 H1 FY20 H1 FY21 H1 FY22 Interim Results Presentation FY22 10
Slide 11: Key strategic focus areas
Key strategic focus areas Grow IT business Evolve Converged Communication business Reduce cost to serve Interim Results Presentation FY22 11
Slide 12: Financial performance under pressure
Financial performance under pressure Revenue EBITDA & margin Rm Rm 1 600 50,0% 8 899 1 351 45,0% 1 400 7 948 7 461 40,0% 1 140 1 037 1 200 35,0% 30,0% 1 000 25,0% 15,2% 800 14,3% 13,9% 20,0% 600 15,0% 6.1% 0.4 ppts 10,0% 400 5,0% 200 0,0% H1 FY20 H1 FY21 H1 FY22 H1 FY20 H1 FY21 H1 FY22 Interim Resul
Slide 13: Converged comms nearing stabilisation
Converged comms nearing stabilisation Revenue Next-generation revenue CPE and Sundry Data access revenue Legacy 623 4 305 Data Next - generation Voice 619 3 749 545 3 593 37% 51% 70% 1 676 1 546 1 497 63% 4.2% 49% 2 006 1 584 1 551 30% H1 FY20 H1 FY21 H1 FY22 H1 FY20 H1 FY21 H1 FY22 Interim Results
Slide 14: IT remains under pressure
IT remains under pressure Revenue Annuity revenue ratio Hardware 74% Existing 4 594 and Software Application [67%: H1 FY21 | 4 199 Solution 68%: H1 FY20] 3 868 IT services 26% New 786 [33%: H1 FY21 | 32%: H1 FY20] 935 797 1 470 H1 FY22 1 249 1 086 2 338 7.9% 2 015 1 985 H1 FY20 H1 FY21 H1 FY22 Inter
Slide 15: Key strategic focus areas
Key strategic focus areas Modernise the network Commercialise the network Transforming service delivery Interim Results Presentation FY22 15
Slide 16: Stable financial performance
Stable financial performance Revenue EBITDA/EBITDA margin Enterprise Carrier Business Rm Rm Services Services 18 794 32,3% 31,9% 16 657 28,2% 98 619 14 397 7 926 2 564 6 846 6 720 2 146 1 931 78 266 67 541 1.8% 11.1% 13.7% 12.8% H1 FY20 H1 FY21 H1 FY22 H1 FY20 H1 FY21 H1 FY22 H1 FY20 H1 FY21 H1 FY22
Slide 17: Fixed broadband evolution
Fixed broadband evolution Fixed line broadband data consumption Fixed line broadband connections Fixed line broadband services Below 10Mbps Legacy Access Access Petabytes connections Subscribers 10Mbps and higher Fibre Access 809 723 27% 558 46% 41% 56% 61% 75% 73% 11.9% 59% 54% 44% 39% 25% H1 FY20
Slide 18: Accelerated investment in fibre
Accelerated investment in fibre Homes passed with fibre Fibre homes connected1 707 399 331 735 4 0 0 0 3 5 0 0 0 247 019 458 791 448 483 3 0 0 0 195 416 2 5 0 0 0 2 0 0 0 54.2% 34.3% 1 5 0 0 0 1 0 0 0 5 0 0 H1 FY21 H1 FY22 H1 FY20 H1 FY21 H1 FY22 H1 FY20 1 FY2021 Homes Connected measure as per the F
Slide 19: Key strategic focus areas
Key strategic focus areas Grow tenancy ratio Execute build plan program Expand range of products and services Interim Results Presentation FY22 19
Slide 20: Robust financial performance
Robust financial performance Revenue EBITDA & margin Capex FCF* Rm Rm Rm Rm 532 550 100% 674 95% 484 500 628 150 90% 354 333 450 85% 583 79% 77% 80% 400 381 75% 65% 350 70% 54 65% 107 300 7.3% 9.9% 177.8% 6.0% 34 60% 250 55% 200 50% H1 FY20 H1 FY21 H1 FY22 H1 FY20 H1 FY21 H1 FY22 H1 FY20 H1 FY21 H1
Slide 21: Growth in productive portfolio and tenancy ratio
Growth in productive portfolio and tenancy ratio Tower portfolio (all site types) Productive portfolio growth (# of sites) (# of sites) +140 -147 +3 -16 6 225 6 218 +140 H1 FY21 New Sites Decommissioned H1 FY22 Tenancies and Tenancy ratio1 3 834 (# of tenancies) 3 707 1.52x 1.55x +290 5 641 5 931 H1
Slide 22: Robust returns
Robust returns Disciplined capital Adequate balance investment sheet capacity 22% <0.5x Capex to revenue Net debt to EBITDA High EBIT Highly cash margin generative 77% 1.16 cash conversion* *Cash conversion = Cash generated from operations (R615m) before Net interest received (R9,9m) and before Tax
Slide 23: Financial overview
Financial overview 3 Interim Results Presentation FY22 23
Slide 24: Group financial performance
Group financial performance Revenue 0.5% EBITDA growth 1.2% EBITDA margin 0.5ppts R21.3bn R6.0bn 28.1% HEPS Net debt to Negative Free growth 30.4% EBITDA 0.2x Cash Flow 285.5 cps 1.1x R839m R Interim Results Presentation FY22 24
Slide 25: Group revenue sustained
Group revenue sustained Revenue by stream H1 FY21 Interconnection Rbn H1 FY22 Subscriptions Usage 21,4 21,3 8,8 8,3 0.2 0.2 0.5% 6.8% 7.9% 14.9% 17.8% 11.0% 5.1% 2.1 1.1 2,91.6 2,9 2,7 2,4 2,1 2,0 0,4 1,9 0,4 Group revenue Mobile Information 1.1 Fixed voice and Traditional fixed New fixed Gyro servi
Slide 26: EBITDA margin expansion
EBITDA margin expansion EBITDA analysis H1 FY20 Rm H1 FY21 H1 FY22 5 978 5 908 28,1% 27,6% 75,6% 5 560 73,8% 73,2% 25,9% 1.2% 0.5ppts 0.6ppts EBITDA EBITDA margin Total cost to revenue ratio* *Total cost includes direct and operating expenses Interim Results Presentation FY22 26
Slide 27: Mobile direct expenses under control
Mobile direct expenses under control Direct expenses Mobile cost efficiency ratios Direct expenses Rm Rbn Mobile revenue Costs to serve* / mobile service revenue ratio 1 2 ,0 3 1 ,0 % 172 244 63 3 0 ,5 % 1 0 , 30,5% 3 0 , % 8 ,0 29,6% 2 9 ,5 % 6 ,0 28,4% 2 9 ,0 % 10,4 10,2 5 560 5 425 9,4 2 8 ,5 % 2
Slide 28: Strong earnings growth
Strong earnings growth BEPS and HEPS improvement H1 FY20 Cents H1 FY21 H1 FY22 Earnings improvement driven by: • Lower finance charges due to a reduction in gross debt levels. • Lower and stable interest 285,5 276,8 rates. 219,0 217,5 174,6 168,0 27.3% 30.4% • Favourable foreign exchange hedging pos
Slide 29: Capex acceleration in Fibre services
Capex acceleration in Fibre services Accelerated capex Capex investments allocation Capex spend Fibre services* Rm Capex intensity % Mobile Information technology Network sustainment 9% 2% Subsidiaries and other 19,7 7% 35% H1 6% 17,0 FY20 4% 5% 13,7 47% H1 45% 4 238 7% 3 610 7% FY22 2 942 6% 32% H1
Slide 30: Free cash flow generation
Free cash flow generation Free cash flow (FCF) movement H1 H1 Cash flow performance driven by: % Rm FY22 FY21 • Handset financing of approx. R300 million Cash generated from operations excluding VSP, VERP • Q4 FY21 Capex settled in H1 FY22 4 620 6 115 (24.4) and section 189 costs paid • Prior period
Slide 31: Healthy balance sheet
Healthy balance sheet Rm H1 FY22 FY21 % Debt maturity profile Cash balances 3 388 5 002 (32.3) Call borrowings Interest bearing debt 10 875 10 866 (0.1) 3 000 Bonds Opening balance 10 866 12 005 9.5 Term loans 2 500 Net funding raised/(repaid) (100) (1 132) (91.2) Foreign loans Other 109 (7) (1 657.
Slide 32: H2 Key Initiatives
H2 Key Initiatives Grow Improve FCF revenue profitability generation • Fulfill IT backorders • Sustainable cost • Net working capital management optimisation • Mobile regionalisation & CVM - contain Opex • Handsets receivables below inflation financing • Fintech and content - optimise Direct costs •
Slide 33: Holistic view of capital allocation framework
Holistic view of capital allocation framework 1 Inputs Annual Strategic Planning/Investment Strategy 4 Outputs Sources Operational cashflow and cash Debt Alternative Value 2 of Capital release initiatives Issuance Funding Solutions Unlock Total Optimal Maintain a strong balance sheet Performance Shar
Slide 34: Value unlock
Value unlock 4 Interim Results Presentation FY22 34
Slide 35: Recap: Strategic rationale
Recap: Strategic rationale Valuation Proceeds • Not a reflection of Telkom’s intrinsic value • Options • Telkom InfraCo assets are not recognised - Reinvest in the business • InfraCo assets trade at higher multiples such - Rebase the balance sheet as Towers, Data Centres and FibreCo - Return cash to
Slide 36: InfraCo trading at higher multiples, outperform telcos
InfraCo trading at higher multiples, outperform telcos Portfolio index evolution1 (%, November 2nd 2015 to November 2nd 2020) 250% Annual index Average change(%) EV/EBITDANTM(x) 200% 22.1% 18.6x Data Center 150% 17.6% 19.6x TowerCos 100% 17.3% 14.4x FibreCos 9.2% 11.0x S&P500 50% 1.8% 6.5x Telco 0%
Slide 37: JSE Listing
JSE Listing Ticker name: SWN Main Board: TMT sector Float: Minority interest Timeframe: By year end 5 Interim Results Presentation FY22 37
Slide 38: Independently managed TowerCo
Independently managed TowerCo Towers Tenants Regional distribution 45% Anchor Tenants 58% Inland (Telkom Mobile 42% Coastal 6 218 Current tower sites & Openserve) 32% Tower assets MNO third party Commercially productive tenants 3 834 tower sites 23% Non-MNO third party tenants Planned sites in ~2 10
Slide 39: Independent board, strong management team
Independent board, strong management team Board of Directors Management team – MSA Majority shareholding by Telkom Independent Board • 3 Telkom representatives • 4 Independent Non-Executive Directors Lesiba Maloba Siphethe Dumeko Nhlamulo Baloyi Independent board sub-committees CEO CFO Mast & Towers
Slide 40: Swiftnet investment case
Swiftnet investment case Supportive strategic Attractive Robust Strategy to shareholder assets class returns drive growth • Telkom, a strategic and • TowerCo trades at high • High EBITDA margins in • Commercialise and a long term shareholder multiples excess of 75% increase tenancy on existing portf
Slide 41: Outlook
Outlook 6 Interim Results Presentation FY22 41
Slide 42: Effective management transition
Effective management transition Serame Taukobong Lunga Siyo GCEO Designate CEO: Telkom Consumer • 18 years of experience in telecoms • >10 years experience in telecoms and financial services • Joined in 2018 • Joined in 2018 • Previously at General Electric (GE) • Previously at Standard Bank Interim
Slide 43: Dual national roaming partner strategy
Dual national roaming partner strategy 3G – 80.5% eNodeB Telkom LTE – 77.7% eNodeB RAN Telkom Telkom Core Services 3G eNodeB Vodacom HSS LTE eNodeB RAN MSS MGW MME EPC 3G eNodeB MTN • Access to 2G, 3G and 4G and seamless handover LTE eNodeB RAN • Access to 3 networks, improved customer experience •
Slide 44: Business portfolio reviewed for growth
Business portfolio reviewed for growth Growth Scale Capability • Scale drives economics and • Current core business alone does underpins competitiveness not provide a sufficient source of growth for Telkom • Enables market relevance in our core business • Critical skills to drive adjacent opportunit
Slide 45: BCX strategic intervention
BCX strategic intervention Initial investment Strategic gains Strategic intervention thesis to date options • Various IT segments converging • Growth in converged • Strategic partnerships : with connectivity communications capabilities - New IT capabilities & skills to focus (including SD-WAN, unifi
Slide 46: Q&A Thank you
Q&A Thank you Interim Results Presentation FY22 46
Slide 47: Annexure
Annexure Interim Results Presentation FY22 47
Slide 48: Historical performance demonstrates strong compound growth
Historical performance demonstrates strong compound growth Revenue EBITDA & margin Capex FCF CAGR% Rm Rm Rm Rm 1 237 1 100 100% 993 1 160 1 000 95% 186 900 90% 807 687 85% 80% 800 135 80% 857 495 700 75% 422 600 70% 70% 500 20.1% 65% 62.5% 97% 17.8% 376 48 400 60% 300 55% 200 50% FY19 FY20 FY21 FY19