Telkom Sa Soc Ltd. · JSE:TKG
Telkom Sa Soc — H1 FY2021 Earnings Presentation
57 slides from Telkom Sa Soc's earnings presentation, November 2020
Slide 1: Interim Results Presentation 2020
Telkom SA SOC Ltd Interim Results Presentation 2020 for the six months ended 30 September 2020
Slide 2: Operating environment
Operating environment 1 Interim Results Presentation FY2021 2
Slide 3: Covid-19 Impact
Covid-19 Impact Telkom employees Customers under severe providing essential service financial pressure Safeguard health & A nation in crisis due to enable education the coronavirus Interim Results Presentation FY2021 3
Slide 4: R81 million Covid-19 related spend
R81 million Covid-19 related spend Protect health of Support education & Alleviate financial Supporting a nation Telkom employees healthcare initiatives pressure for customers through crisis • Tested and provided • Launched Lightbulb • Reduced prices, increased • Made available our counselling to Ed
Slide 5: Business Performance
Business Performance 2 Interim Results Presentation FY2021 5
Slide 6: Group financial performance at a glance
Group financial performance at a glance Resilient Improved Strong cash topline profitability generation Strengthened Robust earnings balance sheet growth Interim Results Presentation FY2021 6
Slide 7: Robust operational performance
Robust operational performance Mobile 23.3% Mobile data 80.8% Hosted voice 262% data customers traffic seats Fixed line1 FTTH M&T - number broadband 29.6% connectivity 53.8% of leases 10.9% traffic rate 1Access links Interim Results Presentation FY2021 7
Slide 8: Covid-19 impact
Covid-19 Massive mobile data usage impact Strong demand for mobile connectivity Slower rollout based on lockdown protocols Interim Results Presentation FY2021 8
Slide 9: Data-led network strategy
Data-led network strategy Mobile sites integrated Site Backhaul Mobile Core Expansion & New Elements Fibre Ratio MW Ratio Expansion 6 6 4 New 6 159 5 476 77% 79% 73% 4 383 23% 27% 5 5 6 21% H1 FY2019 H1 FY2020 H1 FY2021 H1 FY2019 H1 FY2020 H1 FY2021 H1 FY2019 H1 FY2020 H1 FY2021 Site Type Spectrum M
Slide 10: Data delivers aggressive growth
Data delivers aggressive growth Mobile data revenue Total Mobile broadband subscribers R’m ‘000 53.8% Post-paid 9 644 Pre-paid 7 822 6 010 23.3% 4 752 2 602 H1 FY2019 H1 FY2020 H1 FY2021 3 907 Mobile broadband traffic 2 669 1 705 Petabytes 479 1 435 3 408 265 80.8% 2 197 159 1 234 H1 FY2019 H1 FY202
Slide 11: Robust mobile performance
Robust mobile performance Subscriber growth Mobile service revenue ‘000 R’m 13 687 8 282 11 501 2 610 19.0% 47.8% 2 103 5 602 2 272 6 545 3 578 1 695 1 667 9 398 11 077 909 6 010 4 878 Pre-paid 3 907 Data 2 669 Post-paid Voice H1 FY2019 H1 FY2020 H1 FY2021 H1 FY2019 H1 FY2020 H1 FY2021 ARPU EBITDA/m
Slide 12: Telkom's 10 years of mobile
Telkom’s 10 years of mobile Commercial Performance • First to commercialise the • Clear #3 operator in South Africa 2300 MHz spectrum in SA based on service revenue • Data led network with • 13.7 million customers with a 91.0% of sites on 4.5G highest blended ARPU of R113 • Led with data proposition
Slide 13: Covid-19 impact
Covid-19 Large Enterprises affected by the national lockdown impact Customers under severe financial pressure Performance impacted because it correlates economic cycle Interim Results Presentation FY2021 13
Slide 14: Commercial response to Covid-19
Commercial response to Covid-19 AIOps Launch of BCX EXA (Artificial Intelligence for IT Operations) A new division under BCX’s IT Solutions Implemented AIOps8.1%for Telkom. It enhances portfolio, with the purpose of advising response times to proactively identify and co-creating digital transformati
Slide 15: Data Centres and Cloud Services
Data Centres and Cloud Services Data Automated, Modern Analytics Hybrid and Scalable Driven Operations Cloud centres > 10 Geographically Dispersed Locations > 12 500 m2 + 3 Tier IV DCs > 99.99% Uptime > Software defined architecture Multiple Secure Digital Data Centre Pairs Platforms > 262% Increase
Slide 16: Resilient IT business
Resilient IT business Revenue Revenue 19% mix Products 8.6% Services 2021 4 548 4 594 4 199 631 786 81% 716 1 366 1 470 1 248 27% Hardware Annuity revenue New Application Existing Solutions ratio 2 551 2 338 IT Services 2 235 73% H1 FY2019 H1 FY2020 H1 FY2021 Interim Results Presentation FY2021 16
Slide 17: Performance impacted by Covid-19
Performance impacted by Covid-19 Revenue Total expenses 10.7% 10.1% 8 120 9 022 8 899 419 7 599 297 Service fees, operating 493 410 6 833 7 948 International leases 219 1 840 1 740 319 and Other 1 493 3 659 Selling, general and 3 652 administration Midmarket 3 102 3 281 3 428 Employee expenses 3 257
Slide 18: Covid-19 impact
Covid-19 Surge in fixed data consumption impact Increased demand to connect to fibre services Accelerated decline in fixed voice services Interim Results Presentation FY2021 18
Slide 19: Resilient network
Resilient network Customer Products Access network to Local connectivity National connectivity Systems and & Services customers and clients between smaller towns between major centres Applications - FTTx - xDSL - Voice - FLLA - LTE & LTE-A Backhaul Aggregation Core - Mobile Voice Network Network - M
Slide 20: Boost in data consumption
Boost in data consumption Fixed line broadband Fixed line Broadband connections data consumption Access Connections Petabytes1 29.6% 15.8% 954 434 723 823 870 558 693 922 488 H1 FY2019 H1 FY2020 H1 FY2021 H1 FY2019 H1 FY2020 H1 FY2021 1Access links Interim lnterim Results Presentation FY2021 20
Slide 21: Improved fibre connectivity
Improved fibre connectivity Fibre Homes Connected Business connections Ethernet Business 54% Connections 350 000 54% 48 766 42 417 29.0% 44% 33 011 300 000 44% 15.0% 36% 247 019 10.2 250 000 34% ppts H1 FY2019 H1 FY2020 H1 FY2021 195 416 200 000 24% Fibre to Base stations Connections 150 000 139 838
Slide 22: Data eco-system evolution
Data eco-system evolution Next generation ethernet technology Fibre access Services Connections 247 728 54 756 60 181 195 416 44 065 9.9% 139 839 26.8% H1 FY2019 H1 FY2020 H1 FY2021 H1 FY2019 H1 FY2020 H1 FY2021 Data solutions evolution Broadband connection evolution Legacy technology Copper access1
Slide 23: Covid-19 impact
Covid-19 Demand for M&T space continued impact M&T build plan impacted by the lockdown regulations Property disposal process delayed Interim Results Presentation FY2021 23
Slide 24: Masts & Towers portfolio
Masts & Towers portfolio 1 Towers 2 Tenants 3 Financial performance (R’m) Revenue Full portfolio of Non-MNO 19% ~6,200 towers third party EBITDA tenants x% Tower assets 42% EBITDA Margin ~3,650 Productive Portfolio Growth Towers: 1 or MNO third Anchor ~2,550 less tenants party Tenant tenants (Telkom
Slide 25: Strong tenancy growth
Strong tenancy growth Revenue Total tenant growth R’m Number of leases Internal External 583 628 10 588 9 551 379 270 282 7.7% 8 577 10.9% 115 264 313 346 H1 FY2019 H1 FY2020 H1 FY2021 H1 FY2019 H1 FY2020 H1 FY2021 EBITDA EBITDA margin R’m (%) 484 77.1% 11.7 381 27.0% 65.4% ppts 46.2% 175 H1 FY2019
Slide 26: Increasing tenancy
Increasing tenancy New Tower Build Programme gaining significant momentum Commercialise and increase tenancy on existing towers # of new towers # of new tenancy leases (FY2021) (FY2021) 81 400 175 778 94 378 H1: Towers in H2: Forecast Total FY21 H1: New Leases H2: Projected Leases Total FY21 Leases
Slide 27: Covid-19 impact
Covid-19 Small and Medium Entities (SMEs) hit hard by Covid-19, impact unable to trade for 2-3 months Some SME customers ceased operation Interim Results Presentation FY2021 27
Slide 28: Digital platform ecosystem for SMEs
Digital platform ecosystem for SMEs Yep! E-Commerce Yep! Pay mobile Marketplace platform payments device Insurance Partnership to offerings pilot SMEs funding expanded solutions Interim Results Presentation FY2021 28
Slide 29: Financial overview
Financial overview 3 Interim Results Presentation FY2021 29
Slide 30: Salient features of financial performance
Salient features of financial performance Resilient EBITDA HEPS 0.4 % Group 6.3% growth 25.4% growth Revenues EBITDA margin improved by 1.7ppt to 27.6% Improves from negative Capex intensity Net debt to EBITDA R1.3bn ratio ratio improves from 1.3x (FY2020) Positive Free Capex impacted by +R1.3bn 13.
Slide 31: Strong performance despite COVID-19 headwinds
Strong performance despite COVID-19 headwinds Headline Operating earnings per Capital Free cash R’m revenue EBITDA share (cents) investments flow** H1 FY2021 21 396 5 908 219.0 2 942 1 343 H1 FY2020* 21 479 5 560 174.6 4 238 (1 267) Variance (%) (0.4) 6.3 25.4 (30.6) 206.0 * The prior period numbers
Slide 32: Resilient topline, underpinned by strong mobile growth
Resilient topline, underpinned by strong mobile growth Revenue by stream 26.3% (R’bn) 29.5% 47.8% H1 H1 FY2020 FY2021 26.3% 15.6% 4.7 328 8.3 3.3 3.3 27.3% 199 2.4 2 787 10.5% 5.6 2 061 3.4 2.9 1 633 1.5 1.9 0.3 0.3 1 088 Mobile service revenue Information technology Fixed voice and Traditional fixe
Slide 33: Optimisation of mobile direct costs
Optimisation of mobile direct costs Direct expenses decline despite mobile growth Improved mobile direct expenses to revenue ratio R’m R’bn Direct expenses 5.3% Mobile revenue (R301m) Costs to serve* / mobile service revenue ratio 208 709 200 52.6% 44.3% 38.2% 10. 0 37. 0% 9.0 36. 0% 5 726 36.3% 33.
Slide 34: Continued focus on operating cost containment
Continued focus on operating cost containment Operating expenses decline R’m 1.5% (R157m) 172 • Restructuring benefits - R443m 202 217 • Other employee savings – R93m Employee • 0% salary increases expenses • Offset by employee benefit provisions – (R364m) 10 515 10 358 • Property operating cost red
Slide 35: Impressive EBITDA growth and margin expansion
Impressive EBITDA growth and margin expansion EBITDA movement EBITDA margin R’m 6.3% 1.7 (R348m) ppts 2 381 1 895 157 27.6% 60 301 536 25.9% 5 908 5 560 H1 FY2020 Mobile revenue Fixed revenue Information Other * Direct expenses Operating H1 FY2021 H1 FY2020 H1 FY2021 technology expenses revenue * In
Slide 36: Double digit earnings growth
Double digit earnings growth BEPS and HEPS improvement Solid underlying performance Cents R’m 24.8% 240 24 29.5% 25.4% 1 086 870 217.5 219.0 168.0 174.6 H1 H1 H1 H1 H1 FY2020 Profit after tax Headline earnings H1 FY2021 FY2020 FY2021 FY2020 FY2021 adjustments BEPS HEPS Interim Results Presentation F
Slide 37: Capital expenditure impacted by the national lockdown
Capital expenditure impacted by the national lockdown Lockdown impact on capex intensity Capex investments focused on key growth areas R’m (%) Fibre services* H1 FY2021 Mobile Capex spend Capex intensity Information Technology Network sustainment 4 238 10% Subsidiaries and other 7% 3 276 2 942 3% 32
Slide 38: Strong cash flow generation
Strong cash flow generation Free cash flow (FCF) movement H1 H1 % R’m FY2021 FY2020 Cash generated from operations excluding VERP, VSP and section 189 6 115 4 608 32.7 package cost payments Less: VERP, VSP and section 189 package costs paid (1 132) (162) (598.8) Cash generated from operations 4 983
Slide 39: Sustained working capital management
Sustained working capital management Cash generated from operations movement R’m R1.8bn 32.7% R1 507m 12.1% R537m 686 458 655 1 132 53 1 132 61 6 115 4 608 4 983 H1 FY2020 Profit before tax Net finance Non-cash items Increase in Improvement in Improvement in H1 FY2021 VERP, VSP and Adjusted H1 charg
Slide 40: De-risked balance sheet–strong liquidity and debt cut
De-risked balance sheet–strong liquidity and debt cut Cash balances Borrowings (incl IFRS 16) R’m R’m Three fold improvement from H1 FY2020 after: 16 815 16 780 15 836* 4 726 • VERP & VSP (R1.1bn) 3 905 • debt repayment 5.6% (17.4%) (R900m) (R944m) R900m debt (R821m) 1 002 • SARS payment repayment i
Slide 41: Outlook
Outlook 7.2 Interim Results Presentation FY2021 41
Slide 42: Ongoing focus on building financial resilience
Ongoing focus on building financial resilience Sustainable cost Cash management Preservation Financial risk Disciplined capital management allocation Interim Results Presentation FY2021 42
Slide 43: Sustainable cost management
Sustainable cost management Achieved H2 Focus Target H1 FY2021 FY 2021 Cost management • Phase 1 R0.5bn Phase 1 benefit restructuring 3rd party R0.7bn • Reduction in fixed costs • 0% Salary contracts review Other cost – R1bn • Reduce cost to increases • Cost to serve initiatives serve/acquire R0.2bn
Slide 44: Cash preservation
Cash preservation Achieved H2 Focus Target H1 FY2021 FY 2021 Cash preservation • Supply chain financing • Supply chain R150m • Handset Positive R0.7bn receivables R600m • Handsets receivables financing free - R1bn financing cashflow target • Disposal of non-core assets • Working R250m • Supply R150m
Slide 45: Renewed funding strategy and reduced re-financing risk
Renewed funding strategy and reduced re-financing risk Rm Floating Foreign Loans Fixed Term Loans Bonds 46% 52% 50% Commercial Paper 6000 Call Borrow Actuals 5000 54% 48% 50% Interest H1 FY2020 FY2020 H1 FY2021 4000 89% 84% 3000 R900m 69% repaid 2000 Debt 31% 1000 profile 16% 11% 0 FY18 FY19 FY20 FY
Slide 46: Adequate headroom to support growth
Adequate headroom to support growth R’m Sufficient headroom 1.4x 1.0x 2x for execution of: +R12.3 bn net debt headroom Spectrum acquisition Capex 2x Weathering COVID-19 storm 24 224 S&P ratings: Credit 15 813 BB, stable outlook 11 931 Moody’s 5 560 5 908 Ba1, negative outlook H1 FY2020* H1 FY2021* H
Slide 47: Outlook in uncertain economic environment
Outlook in uncertain economic environment Stable revenues Strong liquidity position Sustainable cost Strong balance sheet management Capex intensity Participate in spectrum within 16% - 20% Interim Results Presentation FY2021 47
Slide 48: Spectrum/WOAN licensing
Spectrum/WOAN licensing 4 Interim Results Presentation FY2021 48
Slide 49: Participation not tacit agreement
Participation not tacit agreement Not informed by Proposed overall Auction design Less spectrum economics and spectrum cap flawed flawed to the WOAN competition • Disregards the current • Spectrum equilibrium • 700/800 MHz not • ITA reserves 80 MHz market structure and will not address available nat
Slide 50: Mitigation of risk
Mitigation of risk Action taken • Argued that Mobile Broadband Services Inquiry (MBSI) must take into account spectrum arrangements • Outcome of the MBSI must inform the licensing of spectrum • Application to review and set aside the ITAs for its disregard of implication of new spectrum on competiti
Slide 51: Value unlock (Infrastructure)
Value unlock (Infrastructure) 5 Interim Results Presentation FY2021 51
Slide 52: Telkom remains undervalued
Telkom remains undervalued Telkom’s trading at 2-2.5x EV/EBITDANTM multiples of comparable companies1 9.2x Consumer 8.2x 7.4x 7.4x Avg: 6.9x 7.0x 5.7x BCX 4.8x Avg: 4.4x 5.5x 5.4x 4.8x 3.8x 3.1x Nigeria Africa 12.2x 11.8x 11.5x Avg: 11.2x 11.3x 10.4x Gyro M&T Data 9.9x Centre 15.6x 14.5x Openserve 1
Slide 53: Preparation for an external investor on track
Preparation for an external investor on track Gyro Towers valuation Not factored in valuation • Current tenancy ratio of 1.4x • A portfolio of towers which does not 3,650 commercially • Existing tenancies’ leases assumed to have tenants, located in a low escalate at their contract terms 2,483 demand
Slide 54: Data Centre portfolio – 10 data centres
Data Centre portfolio – 10 data centres Telkom Group data centres Hub 3 out of 4 certified Tier 4 data 10 Data Centres centres in SA are TKG owned 1,592m2 Nexus ~11MW IT capacity 1,335m2 ~6,500m2 HBHK 327m2 Tier 4 Tier 3 Tier 2 NDC2 912m2 Certified tiering Carrier1 neutral NDC1 KZN 1 Equipable floor
Slide 55: Data Centres trading at attractive multiples
Data Centres trading at attractive multiples EV/EBITDA1 NTM Opportunity (x) 26.8x Colocation • Allows users to rent space (rack space) for commercial a fixed monthly charge • Users receive a fixed power supply at fixed 23.6x model rates and increase power consumption at 21.4x 21.2x variable rates 20
Slide 56: Fibre and Wholesale business value unlock
Fibre and Wholesale business value unlock EV/EBITDA1 NTM (x) 15.6x Structural separation 14.5x 10.6x Balance sheet split 9.9x Avg: 10.2x 8.5x 7.7x 7.3x 7.2x Asset split Valuation of Assets Notes: 1As of November 6th 2020 Source: Delta Partners analysis and calculation provided on a non-reliance basi
Slide 57: Thank you Q&A
Telkom SA SOC Ltd Thank you Q&A Interim Results Presentation FY2021 57