Telkom Sa Soc Ltd. · JSE:TKG
Telkom Sa Soc — FY2023 Earnings Presentation
55 slides from Telkom Sa Soc's earnings presentation, 2023
Slide 1: Annual Results Presentation 2023
Telkom SA SOC Ltd Annual Results Presentation for the year ended 31 March 2023 Seamlessly connecting our customers to a better life Annual Results Presentation 2023 1
Slide 2: Operating context
Operating context 1 Annual Results Presentation 2023 2
Slide 3: Weak trading environment
Weak trading environment Challenging macro-economic environment Total loadshedding increased >5x to • Sustained high inflation 5 585 hours in FY2023 - CPI at 7.1% above SARB range (March ’23) Impact on Telkom Group: • No real GDP growth forecast for 2023 - 0.2% • 96% higher diesel usage at record-hi
Slide 4: Business Overview
Business Overview 2 Annual Results Presentation 2023 4
Slide 5: Group salient features
Group salient features Operating revenue Capex marginally up down 1.1% to by 0.9% to R7 401 million R43 138 million Normalised HEPS down 76.6% to 134.6 cents per share Free Normalised EBITDA cash flow down 30.9% down 19.8% with to negative EBITDA margin at 22.1% Normalised R2 722 million Net debt BE
Slide 6: New technologies driving growth
New technologies driving growth 7.8% Leading Mobile industry IT subscriber connectivity rate Growth Increase growth 47.4% in productive portfolio Network 1 167 1 895 Broadband petabytes availability rate Petabytes 66 10 of data 99.50% to New growth 99.99% 11.1%* towers Power-as-a- Service sites Grow
Slide 7: Migration from legacy to NGN revenue technologies
Migration from legacy to NGN revenue technologies 31.9% 10.2% 9.1% 10.3% Growth in NGN NGN revenue Growth in Growth in revenue to growth to IT revenues to continuing R1 536m (excl. R8 716m R 7 644m customers to Mobile) R920m 32.8% 28.3% 12.3% 16.1% Decline in Decline in Decline in Decline of fixed l
Slide 8: Human capital required to operate sustainably
Human capital required to operate sustainably, c. 1 742 employees impacted 01 02 03 S189 VSP/VERP S189 Notice Process Exits issued on 14 February 2023 1 165 577 employees accepted exits due to retrenchment VSP & VERPs on 31 May 2023 1 165 employees accepted voluntary severance and early retirement p
Slide 9: ESG highlights
ESG highlights FY2023 Highlights 96% 154 200 445 100 Increase in diesel consumption* FY 2023: 23 086 000 L FY 2022: 11 768 100 L Lives impacted Platform access for SMMEs 930 200kL (through jobs created) FY 2022: 443 500 FY 2022 (cumulative): 90 000 30 100 33% Reduction in potable water consumption F
Slide 10: COE Programme - R125 million invested in the last 25 years
COE Programme - R125 million invested in the last 25 years Skills development Employment & Economic development ICT Sector development Inputs R125 million invested in the COE Programme by Telkom since 1997: to the R33 million investment by Telkom into the COE between 1997 and 2009 (excluding bursari
Slide 11: Our network evolution
Our network evolution 3 Annual Results Presentation 2023 11
Slide 12: Customer connectivity evolution
Customer connectivity evolution Customers connectivity usage 36 to 375 Gigabytes 64kbps usage per FTTH per user user from FY15 to FY23 Connectivity demand moves from voice to data Annual Results Presentation 2023 12
Slide 13: More than 40 years of fibre deployment across our core & transport network
More than 40 years of fibre deployment across our core & transport network Network Architecture Access Network Technology Core, Aggregation & Applications Access network (includes all relevant FTTH technologies) to customers and clients Local connectivity National connectivity Systems and within reg
Slide 14: R13bn impairment, an IAS36 requirement
R13bn impairment, an IAS36 requirement Considerations that adversely International Accounting Standard 36, impacted Group: Impairment of Assets: • Market changes – pressure on • Requires assessment and testing for consumers impairment - all 4 cash-generating units (CGUs) assessed • Economic factors
Slide 15: Financial Overview
Financial Overview 4 Annual Results Presentation 2023 15
Slide 16: Abnormal items impacting our results
Abnormal items impacting our results Non-cash impairment charge Major impairment indicators Outcome • Share trading at significant discount to net asset value • Non-cash flow impairment charge of R13 billion • All CGU carrying value were measured against value in use, which does not impact business
Slide 17: Normalised group financial performance
Normalised group financial performance 0.9% Revenue 76.6% HEPS* R43.1bn 134.6 cps 19.8% EBITDA* 0.6x Net debt to EBITDA* R9.6bn 1.8x 5.8ppts EBITDA margin* Negative Free Cash Flow 22.1% R2.7bn * EBITDA and HEPS excludes the impact of the restructuring cost of R1 065 million and the tax impact of R28
Slide 18: Group revenue stable with pleasing growth in new generation revenue
Group revenue stable with pleasing growth in new generation revenue Revenue by stream FY22 Interconnection Rbn FY23 Subscriptions Usage 0.9% 7.3% 4.0% 43,1 42,8 33,6 31,3 21,6 20,8 16.8% 13.2% 20.3% 22.6% 15.9% 4.8% 4.1% 11,4 5.3 4,3 4.3 9,5 6,4 5,6 4,9 4,0 0.3 4,2 1.6 2.4 0.3 3,1 2,1 2,0 2.0 3.0 0,
Slide 19: EBITDA impacted by increased expenses
EBITDA impacted by increased expenses EBITDA analysis EBITDA decline mainly due to: Replacing higher margin legacy revenues with lower Rm EBITDA Margin FY21 margin NGN revenues FY22 FY23 Operating expenses increase of 7.3% influenced by: 19.8% 6.2ppts • Expenses relating to load shedding of R874 mil
Slide 20: Strategy to grow mobile post-paid sales having short term impact on mobile costs
Strategy to grow mobile post-paid sales having short term impact on mobile costs Direct expenses Mobile cost efficiency ratios 12.6% Rm (R1 453m) Rbn Direct expenses Mobile revenue Costs to serve* 1 441 13 010 6 11 557 6 42,3% 30,0% Includes 21,6 roaming 20,8 19,6 25, 0 30, 5% Cost of cost relating
Slide 21: Capital allocation prioritises growth
Capital allocation prioritises growth Sources of Capital • Operational cashflow • Debt issuance - adequate debt capacity • Corporate action proceeds • Accelerated property disposal Uses of Capital Total • Re-balance balance sheet and gearing Optimal Shareholder • Prioritise capex in growth to ensure
Slide 22: Capex and ROIC
Capex and ROIC Capex spend and intensity Capex investments allocation Rm Network expansion FY23 9% FY23 FY22 FY21 Capex spend 3% Fibre to the home 1 040 565 839 691 549 957 Capex intensity 6% 32% Homes connected 492 819 389 109 281 065 Active fibre connectivity rate % 47.4 46.3 51.1 8 448 Fibre serv
Slide 23: Free cash flow performance improved in H2
Free cash flow performance improved in H2 Free cash flow (FCF) movement Cash burn rate FY23 FY22 % Rm H1 H2 FY23 FY22 % Closing cash balance 3 469 3 239 7.1 Cash receipts from customers before working Opening cash balance 3 239 5 002 35.2 capital impact 21 220 22 202 43 423 42 957 1.1 Cash movement
Slide 24: Cash generated from operations
Cash generated from operations Cash generated from operations movements Rm R1 179m 32.2% (R3 181m) 1 272 386 3 218 186 1 030 1 658 479 9 886 6 705 Increase in contract assets Increase in trade and other receivables FY22 Profit before tax Net finance charges and fair Non-cash items Decrease in cash r
Slide 25: Balance sheet gearing within acceptable limits
Balance sheet gearing within acceptable limits Rm FY23 FY22 % Credit Loan FY23 FY22 Cash balances 3 469 3 239 7.1 matrix covenants Interest bearing debt 14 357 11 932 (8.8) Net debt to EBITDA Not exceed 3:1 1.8 1.2 Opening balance 11 932 10 866 (9.8) Net funding raised/(repaid) 2 320 (193) (1 302.1)
Slide 26: Reinstatement of dividend policy postponed
Reinstatement of dividend policy postponed Dividend policy Additional Board suspended suspended three considerations dividend policy for years ago at least one • Cash flow and profitability challenges additional year • Negative annual FCF in 2019 • Uncertainty relating to • Adverse economic spectrum
Slide 27: Financial framework to drive sustainable growth
Financial framework to drive sustainable growth Medium term guidance FY23 Inputs Drivers FY2023 – FY2025 (CAGR) Actual Outputs New revenue streams Low to mid single digit (Fibre, Mobile & IT (0.9%) businesses) Revenue growth Sustainable cost management program (staff optimisation, roaming, Low to mi
Slide 28: Corporate activity
Corporate activity 5 Annual Results Presentation 2023 28
Slide 29: Transactions to realise value
Transactions to realise value • Continue to look at options to maximise value for shareholders • We view transactions and partnerships as a lever to realise value Further updates will be • There is great interest for (1) masts and towers business and (2) fibre business made to the market as and • Al
Slide 30: Strategic review & Outlook
Strategic review & Outlook 6 Annual Results Presentation 2023 30
Slide 31: Strategic priorities
Strategic priorities ONE TWO THREE Short-term Mid-term Long-term Focus Focus Focus is on is to is to RELEASING IMPROVE TRANSFORM cash the return the way in on assets which Telkom has ... through disposal of been operating in non-core assets and ... through a deliberate recent years OPEX rationalisat
Slide 32: Telkom of today
Telkom of today Why an Allow for driving Protect & sweat Exploit the Promote & drive INFRA CORE? capital efficiency relevant assets right to win operational synergies • +170,000 km of fibre Fibre • +4 000 productive towers • 1 million homes passed with a (Key asset) Towers • 42% anchor tenancy furth
Slide 33: Telkom of tomorrow - leveraging infrastructure assets for growth
Telkom of tomorrow - leveraging infrastructure assets for growth • Split IT Services Services Consolidate core assets, continue & Converged develop & enable strategic/financial / Enterprise Comms in BCX Converged Co B A partner(s) Comms INFRA • Focus on & enhance C CO F • Support Consumer with finte
Slide 34: Q&A Thank you
Q&A Thank you 7 Annual Results Presentation 2023 34
Slide 35: Annexures Business Unit performance
Telkom SA SOC Ltd Annexures Business Unit performance Annual Results Presentation 2023 35
Slide 36: Annual Results Presentation 2023
Annual Results Presentation 2023 36
Slide 37: Stable mobile growth
Stable mobile growth Subscriber growth ARPU Service revenue EBITDA/EBITDA margin ‘000 Post-paid R Post-paid Rm Data Rm EBITDA margin Pre-paid Pre-paid Voice Mobile EBITDA Blended 18 262 16 936 17 819 17 505 15 326 16 938 27.2% 2 961 27.9% 2 667 20.5% 212 211 2 580 201 12 926 12 563 12 211 104 15 301
Slide 38: Mobile broadband traffic continues to grow
Mobile broadband traffic continues to grow Data revenue Broadband subscribers Broadband traffic Rm Post-paid ‘000 Petabytes Pre-paid 9.2% 19.9% 12 926 12 563 12 211 11 634 5 127 5 183 5 180 1 167 973 942 10 651 10 256 2.9% 7 799 7 380 7 031 FY21 FY22 FY23 FY21 FY22 FY23 FY21 FY22 FY23 Annual Results
Slide 39: Consumer: Ongoing network investment
Consumer: Ongoing network investment Mobile sites integrated 4.5G integrated sites Site backhaul Fibre Ratio 3.2% 5.5% 73% 7 546 6 804 7 313 6 451 4 342 6 430 68% 68% FY21 FY22 FY23 FY21 FY22 FY23 FY21 FY22 FY23 Annual Results Presentation 2023 39
Slide 40: High 4G device penetration and growing 5G base
High 4G device penetration and growing 5G base 4G terminals 81% • 87% of devices in network support 4G and 5G and this aligns with Telkom’s strategy of a data-led network • Device penetration positions Telkom in a pole position with regard to government’s requirement to sunset 2G terminals 5G termin
Slide 41: Annual Results Presentation 2023
Annual Results Presentation 2023 41
Slide 42: Impressive NGN growth
Impressive NGN growth Revenue NGN Revenue1 Legacy & Voice Revenue2 EBITDA/EBITDA margin3 Rm Rm Rm Rm 4.0% 10.2% 28.3% 15.8% 31,0% 32,7% 28,6% 13 485 13 428 5 671 12 897 5 500 30,0% 4 385 8 716 5 000 4 175 4 749 20,0% 4 500 7 909 3 692 4 000 10,0% 7 078 3 500 3 405 0,0% 3 000 -10,0% 2 500 -20,0% 2 00
Slide 43: Evolution of new generation revenue
Evolution of new generation revenue Carrier Revenue Enterprise Revenue Broadband Revenue Voice Revenue Interconnect Usage Rm Rm Rm Rm Legacy 8.8% 1.0% 4.7% Subscription NGN 4 193 26.1% 4% 4 297 3 798 6% 3 949 3 256 13% 3 110 3 078 8% 3 505 18% 11% 1 748 19% 1 627 19% 13% 2 806 1 611 16% 15% -24.3% -
Slide 44: Connect-led strategy delivers highest connectivity rate – 47.4%
Connect-led strategy delivers highest connectivity rate – 47.4% Homes Passed with Fibre Fibre Homes Connected Enterprise1 Carrier1 Connectivity Rate Business Circuits Circuits 23.9% 26.7% 1.3% 5.1% 51,1% 1 040 565 47,4% 46,3% 41 898 41 368 700 000 20 192 39 443 19 210 839 691 492 812 17 888 40,0% 60
Slide 45: Fixed broadband evolution
Fixed broadband evolution Fixed line broadband data consumption Fixed line broadband services Fixed line broadband connections Petabytes Subscribers Below 20Mbps Access Connections (‘000) Legacy Access 20Mbps and higher Fibre Access 1 895 13.8% 641 5.9% 613 605 1 665 21% 19% 1 428 32% 36% 55% 56% 79
Slide 46: Transform Service Delivery
Transform Service Delivery Net Promoter Score (NPS) Fibre Broadband Ave Time to Install Assurance Visits Days Legacy 383 116 2.9% 19.8% 3,13 66,1 Fibre 68,0 319 027 62,4 2,78 2,51 220 609 30.8% 88% 81% 69% 31% 19% 12% FY21 FY22 FY23 FY21 FY22 FY23 FY21 FY22 FY23 Broadband Transport Core Access 99.89
Slide 47: Fibre on demand strategy aligned to future 5G enablement
Fibre on demand strategy aligned to future 5G enablement Partnership with Openserve Pole and fibre to deploy low latency small cells 5G operators to leverage the XGS-PON Openserve PON Enterprise network and fibre for 5G rollout PON Consumer SMB enabled node Potential to reduce backhaul cost Broadban
Slide 48: Annual Results Presentation 2023
Annual Results Presentation 2023 48
Slide 49: IT business growth largely driven by hardware and software investments
IT business growth largely driven by hardware and software investments Revenue EBITDA & EBITDA margin Total Expenses Cost of sales, product related ^ Rm Rm Rm Sales commission, incentive, logistical 0.2% 2.4% costs, payment to Increase other operators 12 756 2 032 12 514 12 493 Decrease Employee exp
Slide 50: IT business growth with healthy annuity levels
IT business growth with healthy annuity levels Revenue Annuity and product revenue ratio Committed to next-generation IT FY2021 Hardware FY2022 Rm and Software Rm FY2023 Application Solution 50% Existing [59%: FY2022| IT services 50% 63%: FY2021] 10.7% 8.1% 11.1% 50% 50% New [41%: FY2022| 7 644 37%:
Slide 51: Converged Communications remained under pressure
Converged Communications remained under pressure Revenue Next-generation revenue Unified Communications decline CPE and Sundry Rm Data access Legacy Rm CPE revenue 4 201 4 166 Data Next-generation Voice 3 872 Total Voice 7 349 1 272 7 274 6 608 1 029 27% 34% 1 346 50% 2 979 2 528 3 181 3 139 3 022 -
Slide 52: Annual Results Presentation 2023
Annual Results Presentation 2023 52
Slide 53: Stable revenue and strong EBITDA margin
Stable revenue and strong EBITDA margin Revenue* Two decommissioning EBITDA/EBITDA margin** Capex customers Rm Other customers Rm Rm 80.4% 1 304 1 292 0.9% 1.4% 43.0% 1 237 1 400 70,4% 1 400 68,8% 1 10 0 80, 0% 1 200 1 200 1 00 0 366 70, 0% 384 -16.1% 458 1 000 900 450 1 000 60, 0% 800 800 50, 0% 80
Slide 54: Growth in commercially productive portfolio
Growth in commercially productive portfolio Tower portfolio (all site types) Productive portfolio growth (# of sites) (# of sites) 4 016 6 023 +74 +74 3 916 +26 5 960 -11 2 FY2022 Decommissioned New Towers 1 FY2023 FY2022 Net reclassified New Towers 1 FY2023 Notes: Notes: 1: 74 New Towers is compris
Slide 55: Property sales proceeds
R64m Proceeds from 39 Property sales 50 Approved transactions properties for concluded disposal in the new financial year 21 Non-binding MOUs concluded with investment partners Annual Results Presentation 2023 55