Telkom Sa Soc Ltd. · JSE:TKG

Telkom Sa Soc — FY2014 Earnings Presentation

32 slides from Telkom Sa Soc's earnings presentation, June 2014

1. Slide 1: Group Annual Results 2014

   2014 Group Annual Results For the year ended 31 March 2014

2. Slide 2: Contents

   Contents 01 01 Overview 02 Financial review 03 Prospects 04 Conclusion 05 Q&A 2

3. Slide 3: Overview

   Overview Sipho Maseko: Group Chief Executive Officer 01

4. Slide 4: Seamlessly connecting South Africans to a better life

   Seamlessly connecting South Africans to a better life 01 Fibre Mobile Wi-Fi • Roll out of largest fibre network in • LTE rollout gaining momentum – • Building the largest Wi-Fi network Africa – 147,000km 1,183 LTE sites integrated in South Africa • Enabler of VDSL – high speed • Achieving speeds of

5. Slide 5: Financial highlights

   Financial highlights 01 BEPS at 285cps, Operating expenses down 6%* 2.1%* (8.2% in real terms) HEPS at Revenue is 388cps, flat, 35%* 1% at EBITDA 3.8%* to R32.5bn R8.4bn Free cash flow generated, remains strong at R1.2 billion* 5 * Excluding once-off items

6. Slide 6: Our early turnaround efforts bear fruit

   Our early turnaround efforts bear fruit 01  Initial phase of cost transformation successful  Good progress in correcting market distortions and regulatory imbalance with government and regulator  Strengthen our balance sheet ‒ Inventory ‒ Property, plant and equipment ‒ Curtailment of post-retire

7. Slide 7: We have started the journey to improve customer service

   We have started the journey to improve customer service 01  Product rationalisation  Improve service and consistency in end-to-end delivery of products and services  Focus on IT systems – Business Process Management  Rebuilding the brand  Improved our rating in the Ask Afrika Orange Index and w

8. Slide 8: Telkom Consumer: data gaining traction with fixed-line voice under pressure

   Telkom Consumer: data gaining traction with fixed-line voice under pressure 01 Key highlights: Key focus areas:  Mobile continues to track  Accelerating broadband favourably against targets penetration Number of LTE sites integrated  Data revenue growth:  Enriching content and value 1,183 ⁻ Fixe

9. Slide 9: Telkom Enterprise: Business IT revenue growth and retention of key client accounts

   Telkom Enterprise: Business IT revenue growth and retention of key client accounts 01 Key highlights: Key focus areas:  Telkom Business mobile  Building a solutions-based increased revenues ~ 281% business through vertical Strong and trusted relationships with key enterprise customers as convergen

10. Slide 10: Wholesale and Networks: Transforming exchanges in support of convergence strategy

    Wholesale and Networks: Transforming exchanges in support of convergence strategy 01 Key highlights: Key focus areas:  Increased entry level speeds  Reducing the turnaround of new installations to 90% within 475,144 active ports  Reduced IPC prices by 15% 5 working days during FY14  Repositionin

11. Slide 11: Financial overview

    Financial overview Deon Fredericks 02

12. Slide 12: F2014 results in perspective: A tough operating environment

    F2014 results in perspective 02 A tough operating environment  Challenging operating environment  Good growth in data dissipated by lower tariffs ‒ Impacted by regulations and requirements being driven down by fierce competitive ‒ Industry consolidation and competition service offerings ‒ Signific

13. Slide 13: F2014 achievements

    F2014 achievements 02 A sound foundation for a challenging future  Stabilised and consolidated business  Curtailed loss making activities - iWay ‒ Revenue flat  Strengthened our balance sheet ‒ Increased EBITDA excl. once off items ‒ Inventory by 3.8% ‒ Property, plant and equipment  Improving M

14. Slide 14: Results impacted by some significant once-offs

    Results impacted by some significant once-offs 02 Mar 2014# Mar 2013* % Operating Revenue R32,483m R32,143m 1.1 Net Revenue R26,041m R26,134m (0.4) Operating Expenses R18,150m R18,543m 2.1 EBITDA R8,370m R8,061m 3.8 Depreciation & Impairments R5,937m R6,180m 3.9 Capital Investment R6,458m R5,768m (1

15. Slide 15: Declining voice minutes, but increase in data and handset sales

    Declining voice minutes, but increase in data and handset sales 02 34.5% 11.6% Voice and interconnection: R 17,745m – 54.6% (2013: 57.7%) Data: R 10,981m – 33.8% (2013: 33.6%) Subsidiaries, CPE sales and other: (4.3%) R 3,757m – 11.6% (2013: 8.7%) 54.6% 1.7% 33.8% Year on year revenue increase Year

16. Slide 16: Voice revenues strained

    Voice revenues strained 02 (4.3%) 18,548 17,745 (7.6%) 0.9% 8,591 7,934 7,743 7,812 (5.6%) 1,597 1 508 Total voice and Voice utilisation Voice subscriptions Interconnection interconnection 2013 2014 16

17. Slide 17: Data volumes continue to gain traction

    Data volumes continue to gain traction 02 ADSL Subscribers 6.5% 926,944 870,505 827,091 2012 2013 2014 Managed data network sites Traffic Volumes in TBytes 6.3% 30000 ADSL Total 50% 25000 44,328 47,125 20000 38,902 15000 10000 5000 0 2012 2013 2014 Mar 2011 Mar 2012 Mar 2013 Mar 2014 17

18. Slide 18: Realising cost efficiencies

    Realising cost efficiencies 02 2.1% 18,543 18,150 2.7% 9,563 9,306 7.5% 5,059 4,682 (3.8%) 2,996 3,110 (13.7%) 925 1,052 Total Operating expenses Employee expenses SG&A Service fees Operating leases (excl depreciation) 2013 2014 Excluding the curtailment gain in the current year and the Competition

19. Slide 19: NGN investment drives growth in capital expenditure

    NGN investment drives growth in capital expenditure 02 Mar 2014 Mar 2013 % Total capital expenditure R6,458m R5,768m (12.0) Group capital expenditure R5,090m R4,220m (20.6) excluding mobile Converting access network R2,439m R1,232m (98.0) to IP (NGN) Maintaining/enhancing existing telecoms & IT R2,6

20. Slide 20: Maintained strong cash balances despite increased capital investment

    Maintained strong cash balances despite increased capital investment 02 Mar 2014 Mar 2013 % Cash flow from operating R6,366m R7,472m (14.8) activities Capital Investments (R6,370m) (R5,627m) (13.2) Reduction in term debt (R2,583m) (R731m) (253.4) Cash at end of period R1,841m R2,381m (22.7) Discreti

21. Slide 21: Prospects

    Prospects 03

22. Slide 22: Financial guidance

    Financial guidance 03 F2014 F2015 F2016 A Stabilise Stabilise Our dividend policy Revenue +1.1% to grow to grow going forward EBITDA margin 25.8% 26%-27% 27%-28% Dividends are considered on an annual basis based on the financial performance of the Group, with reference to financial Capex to Revenue

23. Slide 23: De-risking mobile and strengthening enterprise

    De-risking mobile and strengthening enterprise 03 MTN SA and Telkom Mobile Telkom and Business Connexion  MTN will take over financial and operational  Support growth beyond core business of responsibility for the roll-out and operation of connectivity by expanding into ICT services Telkom’s RAN.

24. Slide 24: We are on track, while challenges remain

    We are on track, while challenges remain 03 What we said What we did Deliver superior customer experience Improved our rating as shown by external surveys Resolve Mobile – remove uncertainty MTN SA/Mobile proposed agreement and curtail future opex and capex begins to address uncertainty Disciplined

25. Slide 25: We want to "Own the digital home"

    We want to “Own the digital home” 03  We will improve customer experience, with a dedicated office focusing on process improvements  Deliver a sustainable, winning mobile proposition  Develop and deliver a plan to accelerate and extend NGN  Stimulate demand with content and value added services

26. Slide 26: Installing fibre to the home

    Installing fibre to the home 01 GROENKLOOF HOUGHTON ESTATE BROOKLYN MORNINGSIDE PRETORIA RIVER CLUB BRYANSTON JOHANNESBURG SANDHURST WESTCLIFF CRAIGHALL ROSEBANK CRAIGHALL PARK PLATTEKLOOF 2 PLATTEKLOOF ILLOVO PLATTEKLOOF 3 WINSTON PARK DURBAN PARKTOWN NORTH CAMPS BAY EVERTON HYDE PARK CAMPS BAY CLI

27. Slide 27: Lead in enterprise, business and government

    Lead in in enterprise, business and government 03  Develop vertical go-to-market and solutions capability for large, corporate and Government business  Grow into adjacent IT markets through organic growth, partnerships and acquisitions  Improve our offer to SMEs with lower cost products, simple b

28. Slide 28: Pre-eminent in wholesale

    Pre-eminent in wholesale 03  Define more competitive pricing and broadband offers  Migrate from legacy to scalable metro ethernet products  Strengthen wholesale sales and business development capabilities  Define wholesale/retail and network operating model boundaries  Develop adjacent growth a

29. Slide 29: Realising our strategy will involve focus and discipline in executing

    Realising our strategy will involve focus and discipline in executing 03 Enabled by:  People & organisational capabilities  An invincible network  The right technologies & solutions  A competitive cost base and efficiency  A sustainable regulatory stance  Partnerships in non-core & adjacent ac

30. Slide 30: Conclusion

    Conclusion 04

31. Slide 31: We have three fundamental goals to reposition the business for growth

    We have three fundamental goals to reposition the business for growth 04 Stabilise our operations to achieve growth in the long term Implementing efficiency drives is necessary but not sufficient Reposition the business to achieve long term commercial sustainability Reposition commercially to genera

32. Slide 32: Questions and answers

    Telkom Questions and answers

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