Slide 1: Re-charting the way forward for Telkom
Telkom SA Limited Re-charting the way forward for Telkom Group Annual Results for the year ended 31 March 2012 1
Slide 2: A tough year of working for our future
“A tough year of working for our future” “Telkom faces many challenges at the moment but we will stay calm, determined and focused on delivering on the promise of our business and strategy going forward.” “Group financial results for the year under review reflect our challenges but we took a number
Slide 3: A tough year: But working towards clear priorities
A tough year: But working towards clear priorities The focus of my first year has been to: • Craft a strategy that focuses on the Group’s core competency, its role in society & the growth opportunities of the future • Build a competent & stable management team • Reduce the error rate that plagued Te
Slide 4: Financial results reflect our challenges
Financial results reflect our challenges • Operating revenue of R33.1bn (0.7%) ~ • Operating expenses of R31.3bn 6.1% • EBITDA (excl. mobile) R10.7bn 2.4% • EBITDA (incl. mobile) R8.5bn (8.8%) • Headline profit for the year R1,658m (32.8%) • Profit after tax for the year R179m (93.0%) 4
Slide 5: Performance in perspective
Performance in perspective 2011 2012 % Profit after tax 2,571 179 (93.0) Taxation 979 595 39.2 Other finance charges 1,068 580 45.7 Multi-Links foreign exchange loss recognised - 1,292 - Investment income (213) (238) 11.7 Depreciation, amortisation & write-offs 4,924 5,569 (13.1) Impairment of iWayA
Slide 6: Telkom faces challenges …
Telkom faces challenges … • Declining voice revenue • Asymmetry in termination rates • Legacy regulatory obligations • Allocation of spectrum • Extensive capital investment required to renew & expand network • Highly competitive fixed & mobile market • Full impact of self-provisioning not visible in
Slide 7: … but its opportunities remain significant
… but its opportunities remain significant • Growth prospects of data communication • Affordable smart phones changes the game • Superior quality of fixed-line broadband • Fixed Mobile Convergence (FMC) leadership up for grabs • Information & Communication Technology (ICT) in the enterprise environm
Slide 8: Market is being driven by data
Market is being driven by data The market is dominated by mobile & mobile data is the high growth area RSA telecommunications market forecast (Rbn) CAGR Fixed voice Fixed data Mobile voice Mobile data 126 128 120 121 124 2% 119 16 20 23 26 29 32 15% R90bn 74 72 69 68 67 66 mobile -2% 9 10 11 12 13 1
Slide 9: Our strategy going forward is clear and focused
Our strategy going forward is clear and focused • Data & broadband Lead in: • FMC • Grow Telkom Business revenue by diversifying the service portfolio • Regain market competitiveness in the consumer market • Consolidate our position as wholesaler of choice • Focus on profitable market segments & ser
Slide 10: Our strategy demands and drives improved execution
Our strategy demands and drives improved execution Operational & managerial priorities Complete transformation to an IP enabled network Build a differentiated mobile data network Optimise capital structure Inculcate a fit for purpose mindset across the group 10
Slide 11: Strong execution in data capabilities and expand product delivery
Strong execution in data capabilities and expand product delivery Fixed-line telephony Converged personal communication Broadband + ISP Individual IT as a service Data connectivity Unbounded connected systems Hosting Computing & software as a service 11
Slide 12: Overall service review FY12 highlights
Overall service review FY12 highlights • 98.7% of Business customer SLAs met or exceeded • 99.2% on time delivery on large customer project implementation • 11.2% improvement on Consumer broadband delivery • 14% improvement in Enterprise/Wholesale broadband delivery • Top 2 box scores for Quality to
Slide 13: Business review – Telkom Business
Business review – Telkom Business: Data driven and building on strengths • Successfully defended our number 1 position in business market • Closed number of strategic growth deals including Old Mutual, Nedbank, Dept. of Communications & Standard Bank • Succeeding with fixed-to-mobile win-back initia
Slide 14: Telkom Business deliverables
Telkom Business deliverables Commitment for FY13 Launch productised cloud services Supplement existing, bespoke services with initial tranche of productised cloud-based services primarily aimed at the SMB segment including Hosted Exchange; Backup-as-a-Service; Payroll-as-a-Service & CRM-as-a-Service
Slide 15: Data drives our Consumer strategy
Data drives our Consumer strategy media rich content & technology enablers • Targeted double & triple play • Enable target offering through Product offering: Product offering: offerings with on-demand high speeds & caps services ─ Consistently more value media-rich content & (speeds & caps) for same
Slide 16: Business review – Consumer
Business review – Consumer: Steps towards a data driven future • Realised broadband subscriber growth of 10% year-on-year • Launched first FMC bundle in the form of Telkom-Mix • Retained 68% of customers that took on the free 3-month Highlights broadband trial • Launched uncapped broadband customer
Slide 17: Consumer deliverables
Consumer deliverables Commitment for FY13 Rationalise & simplify fixed voice portfolio New & improved simplified voice portfolio in market Improve entry level broadband product proposition Increase basic broadband offering speed from 384kbps to 1Mbps Launch new FMC & content services for broadband I
Slide 18: Telkom Mobile strategy: Leapfrog to data leadership
Telkom Mobile strategy: Leapfrog to data leadership, disrupt voice • Strong data focus • Accelerated network deployment • Mass devices bundled with highly competitive data offerings • Data offerings to include disruptive voice packages 18
Slide 19: Business review – Mobile
Business review – Mobile: Investing for a data driven market • Launched highly competitive & leading data offerings – 3Gig, 120Gig & 10Gig midnight surfer • Progress in own network build-out – end May: Highlights 1,849 base stations built with 1,316 sites live • 51% of voice subscribers active on ou
Slide 20: Telkom Mobile deliverables
Telkom Mobile deliverables Commitment for FY13 Build a data network Data leadership through data network coverage, capacity expansion & advanced technologies Increase distribution through direct channels Increase direct channel footprint up to three fold by end of year & develop effective channel mi
Slide 21: One network, all IP
Network transformation is the foundation for Telkom’s future • Consolidating our position as wholesaler of choice leveraging the strongest fibre network in South Africa • Aggressively drive network & IT transformation to enhance customer service & operational efficiency – Revamp access – leverage FT
Slide 22: Business review – Wholesale & Networks
Business review – Wholesale & Networks: Building a high quality data centric network • Significant traction achieved with the commercially-led network transformation programme: − Revamp Access Network: First MSAN commissioned into operation & services working. On track for pilot commencement − Enhan
Slide 23: Wholesale and Networks deliverables
Wholesale and Networks deliverables Commitment for FY13 Enable the network to support higher entry level fixed-line broadband access speeds First step: Upgrade entry level ADSL speed from 384kbps to 1024kbps & 1Mbps to 2Mbps Establish & complete the pilot footprint for our new high-speed broadband n
Slide 24: Working to balance and align our interests with stakeholders
Working to balance and align our interests with stakeholders Reputation score 2011/12 Shareholders Employees & unions Customers Government Competitors Regulators Media Suppliers 24
Slide 25: Creating value for stakeholders will take time….
Creating value for stakeholders will take time…. • For shareholders: a commitment to long term shareholder return • We expect to face continued difficulties & our performance may get worse before it gets better • Acceptable financial performance will be driven by the successful execution of our stra
Slide 26: Financial overview
Financial overview Jacques Schindehütte 26
Slide 27: Financial results reflect our challenges
Financial results reflect our challenges • Operating revenue of R33.1bn (0.7%) ~ • Operating expenses of R31.3bn 6.1% • EBITDA (excl. mobile) R10.7bn 2.4% • EBITDA (incl. mobile) R8.5bn (8.8%) • Headline profit for the year R1,658m (32.8%) • Profit after tax for the year R179m (93.0%) • HE
Slide 28: The numbers tell a concerning tale
The numbers tell a concerning tale • Mobile substitution erodes voice revenue • The drive to convert voice revenue to annuity income must intensify • Data usage grows strongly while prices decrease in equal measures • Increase in leased line revenue belies the risks • Broadband & FMC hold the keys t
Slide 29: Data access drives data demand
Data access drives data demand 3.6% Data: R10,517m – 31.8% (2011: 32.1%) 4.9% Mobile: R1,200m – 3.6% (2011:0.2%) 31.8% Subsidiaries & other: R1,628m – 4.9% (2011: 6.2%) 20.9% Voice: R11,078m – 33.5% (2011: 36.2%) 1.7% 2.0% Interconnect: R1,757m – 5.3% (2011: 5.0%) 4.6% 5.3% Subscriptions: R6,900m –
Slide 30: Mobile substitution erodes voice revenues
Mobile substitution erodes voice revenues (2.8%) 31 533 30 638 (8.0%) (1.7%) 12 045 11 078 10 699 10 517 2.0% 6 900 4.6% 6 763 1 757 Total Subscription and Traffic 1 679 Interconnect Data connection 2011 2012 Reflects the R350m FIFA revenue included in the prior year. Excluding the FIFA revenue data
Slide 31: Traffic revenue and traffic volumes
The drive to convert voice revenue to annuity income must intensify (1.2%) Traffic revenue (15.1%) ZAR million (3.6%) (14.0%) (31.7%) 41.0% (18.9%) 6.2% Traffic volumes (8.8%) Millions of minutes (4.4%) 57.7% (33.0%) 31
Slide 32: Data usage grows strongly while prices decrease in equal measure
Data usage grows strongly while prices decrease in equal measure Subscribers Subscribers Subscribers ZAR million 2011 2012 % Data connectivity 5,325 5,365 0.8 Leased line facilities 2,182 2,310 5.9 Internet access & related services 1,814 1,689 (6.9) Managed data network services 1,243 1,101 (11.4)
Slide 33: Cost reduction will shape profitability
Cost reduction will shape profitability • Working with labour towards retraining a fit for purpose productive workforce • Enhancing execution capability • Leverage external expertise to improve efficiencies • New technology reducing maintenance & utility cost • Property optimisation can reduce cost
Slide 34: Incentivise employees to help transform the business
Incentivise employees to help transform the business 11.1% 9 716 (29.7%) 8 636 (23.6%) 7 193 1.5% 6 138 5 567 5 545 5 484 4 965 (3.0%) 2 974 2 886 (8.0%) 825 764 Employee Payments to other SG&A Service fees Operating leases Depreciation, expenses operators amortisation, impairments and 2011 2012 wri
Slide 35: Cash flow and debt to fund FMC and data leadership drive
Cash flow and debt to fund FMC and data leadership drive • Build a differentiated data capability (R18bn – R21bn total capital expenditure over the next 3 years) • Crucial to control mobile start-up EBITDA drag • Funded by existing surplus cash reserves (R2bn) • Strong fixed-line cash generation • E
Slide 36: Thank you.
Thank you. 36
Slide 37: Additional information
Additional information 37
Slide 38: Group debt comparison
Group debt comparison ZAR million 2011 2012 Movement TL12 1,059 1,060 1 TL15 1,159 1,159 - TL20 1,431 1,495 64 Syndicated loan 3,271 1,995 (1,276) Foreign loans 520 624 104 Finance leases 904 846 (58) Telkom Company 8,344 7,178 (1,166) Subsidiaries 11 7 (4) Group debt 8,355 7,186 (1,169) Net debt 4,
Slide 39: Debt maturity as at 31 March 2012
Debt maturity as at 31 March 2012 ZAR million 2012 Maturing in FY13 TL12 (April 2012) 1,060 Foreign loans 148 Maturing in FY14 Syndicated loan (December 2013) 2,000 Foreign loans 141 Maturing in FY15 Foreign loans 141 Maturing after FY15 TL15 (April 2015) 1,160 TL20 (February 2020) 2,500 Foreign loa
Slide 40: Group capital expenditure
Group capital expenditure ZAR million 2011 2012 % Access network 255 323 26.7 Legacy 161 209 29.8 Next generation network 917 1,263 37.7 Fiber 369 359 (2.7) International 357 224 (37.3) Information operations 71 14 (80.3) Customer premises equipment 214 242 13.1 Facilities 276 332 20.3 Other 215 185
Slide 41: Forward looking statement
Forward looking statement Special note regarding forward-looking statements Many of the statements included in this presentation, as well as oral statements that may be made by us or by officers, directors or employees acting on behalf of us, constitute or are based on forward looking statements. Al