Telkom Sa Soc Ltd. · JSE:TKG
Telkom Sa Soc — H1 2015 Earnings Presentation
36 slides from Telkom Sa Soc's earnings presentation, November 2014
Slide 1: Group Interim Results for the six months ended 30 September 2014
Group Interim Results for the six months ended 30 September 2014
Slide 2: Telkom Overview
Telkom Overview
Slide 3: Overview of the environment
Overview of the environment Real GDP growth Commentary Actual Oct ’13 IMF forecasts Oct ’14 IMF forecasts • Household spending is under pressure 3.1% 3.6% 3.3% 3.4% from rising interest rates, lacklustre job 2.9% 2.8% 2.5% 1.9% 2.3% market, labour issues and poor credit 1.4% environment 2010 2011 20
Slide 4: Our strategy focusses our response
Our strategy focusses our response PURPOSE Our vision is tied to a national Seamlessly connecting South Africans vision to a better life ...as the leading provider of converged ICT solutions OUTCOME … leading to Optimising shareholder value sustainability… Stabilise revenue to return to growth. Grow
Slide 5: Our performance in the first half
Our performance in the first half EBITDA Operating HEPS Net revenue expenses 261.7cps R4.4 bn R13.3 bn R9.2 bn +14.9%* +12.1%* +1.6%* -2.4%* Free cash flow generated, strong at R1.7 billion BEPS excluding once-off items increased 82.7% to 263.2 cps *Excluding VSP/VERP expenses and the PRML curtailme
Slide 6: Remained stable in a weak economic environment
Remained stable in a weak economic environment • Fixed-line revenues remain under pressure – 3.8% decline • Pressure in fixed-voice and wholesale data • Multi-year cost reduction programme gained traction • Mobile produced improved results for the half year • MTN and BCX transactions still under rev
Slide 7: Maintaining revenues and controlling costs
Maintaining revenues and controlling costs • Operating costs decreased 8.3% in real terms • Consolidating the business and improving efficiencies • Key initiatives include: ‒ Staff efficiency programme ‒ Less vehicles leased and fewer kilometres travelled ‒ Lower marketing spend ‒ Lower security cos
Slide 8: A key revenue driver going forward will be customer experience
A key revenue driver going forward will be the ability to excel in customer experience We are tackling three drivers of customer advocacy Value proposition Use experience Service experience Am I getting good Can I use the When I need to value for money? services for what I interact with Telkom, need
Slide 9: Addressing the critical issues our customers are telling us need to be fixed
Addressing the critical issues our customers are telling us need to be fixed Explore and buy Get started Fix fault/ Use Get help • Redesign store • Improve the • Revamped self- • Invest in ISP experience on-boarding service options network capacity • Rebuild online experience (multiple channels) • C
Slide 10: Telkom Retail
10 Telkom Retail
Slide 11: Operational and commercial traction in Consumer
Operational and commercial traction in Consumer • Consolidated the fixed-line and mobile consumer businesses • Rationalised our product offering • Our Summer of Wow campaign is our first truly converged offer • Market leading product offering ‒ First SA operator to offer LTEA and FTTH ‒ Completely u
Slide 12: Consumer: Improvements across unit led by mobile
Consumer: Improvements across unit led by mobile • Mobile EBITDA improved by 50.7% ‒ Grew external service revenue by 48.0% ‒ 22% increase in ARPU • Active mobile subscribers have breached the two million mark • Residential DSL subscribers increased 8% • Extracting efficiencies through consolidation
Slide 13: Leading provider of communications services in business
Leading provider of communications services in business • Exclusive provider of communication services to three big banks • Leading provider of services in the retail and public sector • Good growth in Telkom Business mobile subscriber base to 102 474 subscribers • Increased economic and competitive
Slide 14: Telkom Business positioned for further strength
Telkom Business positioned for further strength • New industry vertical sales focus to offer unique solutions to our customers • Good Managed Data Network Services growth ‒ Growth of 14% in revenues and 4.7% in sites in a saturated market • Migrating customers from legacy to future-fit products on t
Slide 15: Telkom Wholesale and Networks
15 Telkom Wholesale and Networks
Slide 16: Best-in-class consolidated network offering
Best-in-class consolidated network offering INTEGRATED BROADBAND PLAN Fibre VDSL/ADSL LTE Satellite • Premium speed • High consistent speed • High speed • Average speed • Uncapped data • Uncapped data • High mobility • High availability • Multiple users • Multiple users • 100% coverage • Services an
Slide 17: Customer-led high speed broadband offering
Customer-led high speed broadband offering • FTTH: Wholesale open access Fibre Broadband product PRETORIA commercial launch on JOHANNESBURG 1 December 2014 – first fibres lit and presence in 23 suburbs DURBAN • Reduced our 20 Mbps and 40 Mbps pricing • Launched LTE Advance – targeted CAPE TOWN at 50
Slide 18: Optimising our network for better efficiency
Optimising our network for better efficiency • IP connect revenue grew by 4% • Leased line revenue decreased by 21.3% • Improved Metro Ethernet installations by 77% • Decommissioning legacy technology • Increasing traffic volumes and demand, but with downward pressure on prices • Balancing routine w
Slide 19: Financial overview
Financial overview 19
Slide 20: H1 2015 financial highlights
H1 2015 financial highlights • Stabilised revenue amid challenging conditions • EBITDA increased 12.1% – Margin of 27.7% • HEPS (excluding once off items) increased 14.9% to 261.7 cents • Reduced operating cost by 2.4% ‒ Lower employee and marketing cost, decrease in the number of vehicles • Mobile
Slide 21: Interim results Sept 2014
Interim results Sept 2014 Sept 2013 % Rm Rm Operating revenue 15 911 15 989 (0.5) Net revenue 13 299 13 087 1.6 Operating expenses 9 168 9 389 (2.4) EBITDA 4 403 3 927 12.1 Depreciation and impairments 2 489 3 091 19.5 Capital investments 1 815 3 171 (42.8) Free cash flow 1 699 33 5 048.5 Headline e
Slide 22: Quality of earnings
Quality of earnings Sept 2014 Sept 2013 % Rm Rm Profit for the year 1 156 2 964 (61.0) Net FTR/MTR impact (321) (115) (179.1) Gain on sale of assets (53) (7) (657.1) Severance package costs 325 - - Asset write offs and impairments 42 449 (9.7) Profit of the sinking fund (132) (195) 32.3 Curtailment
Slide 23: Higher mobile data and CPE revenues
Higher mobile data and CPE revenues Group operating revenue (Rm) 27.0% (5.9%) Voice and interconnection 574 Sept 2014: 53.9% 1 314 Sept 2013: 55.8% Data Sept 2014: 34.2% Sept 2013: 33.9% CPE sales and other Sept 2014: 8.3% 8 575 Sept 2013: 6.5% 5 448 0.5% (3.9%) Subsidiaries Sept 2014: 3.6% Sept 201
Slide 24: Voice usage remains under pressure
Voice usage remains under pressure Sept 2013 Sept 2014 3.9% 8 924 8 575 0.7% 12.0% 4 071 3 889 3 915 3 584 54.7% 1.5% 225 348 739 728 Total voice and Fixed Voice usage Fixed voice Mobile voice and Interconnection interconnection subscriptions subscriptions Rm 24
Slide 25: Data volumes show steady growth
Data volumes show steady growth Subscribers ADSL 7.4% 965 046 898 203 841 831 Sept 2012 Sept 2013 Sept 2014 Managed data network sites Traffic volumes in TBytes 41.9% 5.3% 27 882 47 830 45 441 19 655 11 958 40 284 8 205 Sept 2012 Sept 2013 Sept 2014 Sept 2011 Sept 2012 Sept 2013 Sept 2014 25
Slide 26: Cost initiatives gaining momentum
Cost initiatives gaining momentum 2.4% Sept 2013 Sept 2014 9 389 9 168 5.2% 4 987 4 727 2.1% 5.5% 2 391 2 341 1.2% 1 513 1 596 498 504 Total operating Employee expenses SG&A Service fees Operating leases expenses (excl depreciation) Rm 26
Slide 27: Capital expenditure
Capital expenditure Sept 2014 Sept 2013 % Rm Rm Total capital expenditure 1 815 3 171 42.8 Group capital expenditure excluding mobile 1 651 2 356 29.9 Converting access network in IP (NGN) 561 999 43.8 Maintaining/enhancing existing telecoms 1 090 1 357 19.7 and IT networks Mobile 164 815 79.9 Measu
Slide 28: Normalised cash flow from operations
Normalised cash flow from operations Sept 2014 Sept 2013 % Rm Rm Cash flow from operating activities 3 469 3 166 9.6 Competition Commission payments 67 67 - Package cost paid 86 710 (87.9) Tax refund received - (854) - Normalised cash flow from operations 3 622 3 089 17.3 Cash at end of period 3 906
Slide 29: Financial guidance
Financial guidance The guidance excludes the impact of the successful conclusion of the MTN and BCX transactions H1 F2014 A H1 F2015 A F2015 F2016 Our dividend policy going forward Net Stabilise Stabilise +0.8% +1.6% Revenue to grow to grow Dividends are considered on an annual basis based on the fi
Slide 30: Prospects
Prospects 30
Slide 31: Our turnaround strategy is on track
Our turnaround strategy is on track • We are seeing the benefits of discipline in operational and capital expenditure • Starting to see the traction in addressing customer experience • Telkom has a unique network and are investing in a targeted rollout of our high speed broadband offering • The regu
Slide 32: Near term priorities
Near term priorities Business unit Key focus area • Accelerate broadband penetration • Continue mobile improvement Consumer • Enrich content and value-added services • Exploit convergence opportunities • Build a solutions-based business through our vertical clusters • Offering converged solutions Bu
Slide 33: De-risking mobile: Telkom Mobile and MTN SA
De-risking mobile Telkom Mobile and MTN SA • The objective is to enhance our position in the mobile market, and allow Telkom to compete with much larger and stronger competitors • Bilateral roaming agreement will enable customers of either party to roam on both networks and have full access to capac
Slide 34: Growing Telkom Business beyond connectivity: Telkom and Business Connexion
Growing Telkom Business beyond connectivity Telkom and Business Connexion • Support growth beyond core business of connectivity by expanding into ICT services • Proposed transaction is funded from our balance sheet and enables the realisation of synergies • Significant opportunity to increase and le
Slide 35: We are clear what needs to be done
We are clear what needs to be done Deliver superior customer experience Disciplined capital allocation with greater emphasis on productivity and returns Complete corporate transactions – awaiting approval for MTN agreement and BCX Improve efficiency – address all costs and optimise net asset base Fi
Slide 36: Questions
36 . Telkom Questions