Telkom Sa Soc Ltd. · JSE:TKG
Telkom Sa Soc — FY2022 Earnings Presentation
49 slides from Telkom Sa Soc's earnings presentation, 2022
Slide 1: Annual Results Presentation
Telkom SA SOC Ltd Annual Results Presentation For the year ended 31 March 2022 Annual Results Presentation FY22 1
Slide 2: Tough trading environment
Tough trading environment Economic Competitive Social volatility landscape instability • Weak GDP growth • Increased intensity in the • Looting in certain parts of the mobile sector country • Rising interest rates • Pricing adjustments in the • Russia/Ukraine War • Rising energy and fuel costs postp
Slide 3: Stabilising regulatory environment
Stabilising regulatory environment Auction ICASA Competition outcome Settlement Tribunal Withdrawal Existing Auction Effective • Licensing unassigned spectrum • ICASA agreement 3500Mhz 28Mhz 22Mhz 50Mhz by 30 June 2022 - Study secondary spectrum 2300Mhz 60Mhz - 60Mhz • New Information Memorandum mar
Slide 4: Business Overview
2 Business Overview Annual Results Presentation FY22 4
Slide 5: Openserve stabilised as the business evolves to NGN
Openserve stabilised as the business evolves to NGN 52.7% 38.4% 16.6% 0.4% 0.3% 18.0% Homes Revenue EBITDA Capex Homes passed Fixed broadband connected growth/ growth/ growth/ with fibre traffic with fibre Revenue EBITDA Capex 840k 389k 1 665 R13.4bn R4.2bn R3.5bn petabytes Annual Results Presentati
Slide 6: Swiftnet continues to commercialise its portfolio
Swiftnet continues to commercialise its portfolio 31.0% >100% 5.9% 4.4% 8.6%* 96.8% Revenue Capex New towers New IBS’s Productive EBITDA growth/ growth/ growth/ (Build program) (Build program) portfolio sites EBITDA Revenue Capex 152 17 3 916 R1.3bn R909m R366m *The decline was driven by the refinem
Slide 7: Mobile Revenue Growth in line with industry
Mobile Revenue Growth in line with industry 10.5% 3.8% 13.7% 6.3% 3.7% 38.8% Active Mobile Capex Mobile Mobile EBITDA growth/ mobile broadband growth/ base stations revenue EBITDA subscribers subscribers Capex 16.9m 10.7m 7 313 R21.4 bn R5.8bn R 2.8bn Annual Results Presentation FY22 7
Slide 8: BCX performance under pressure, some clawback in H2
BCX performance under pressure, some clawback in H2 1.1% 23.3% 74.0% 2.6% 7.1% 9.2% Converged Data Centre Revenue Capex IT business EBITDA growth/ Communication Co-location/ growth/ growth/ customers EBITDA revenue # of racks Revenue Capex R7.3bn 1 345 2 914 R15.3bn R2.3bn R567m racks Annual Results
Slide 9: Financial overview
3 Financial overview Annual Results Presentation FY22 9
Slide 10: Group financial performance
Group financial performance Revenue 1.1% EBITDA flat 0.5%* EBITDA margin 0.2ppts* R42.8bn R11.9bn 27.9% HEPS 2.5%* Net debt 0.3x Negative Free growth to EBITDA Cash Flow including spectrum including spectrum 575.3 cps 1.2x R2.1bn Excluding spectrum funding Excluding spectrum funding 1.1x R negative
Slide 11: Revenue headwinds
Revenue headwinds Revenue by stream Rbn FY21 Interconnection FY22 Subscriptions Usage 43.2 42.8 FY21 17.5 16.9 FY22 0.4 0.3 1.1% 3.3% 6.4% 17.9% 12.6% 7.3% 0.8% 3.9 2.0 5.43.0 6.0 5.6 4.6 4.2 4.0 3.9 0.7 0.7 Group revenue Mobile Information 2.2 Fixed voice and Traditional fixed New fixed Mast & towe
Slide 12: Revenue headwinds offset by strong cost control
Revenue headwinds offset by strong cost control EBITDA analysis FY20 Rm FY21 FY22 11 973 11 908 10 720 27.9% 27.7% 76.8% 73.8% 73.7% 24.9% 0.5%* 0.2ppts* 0.1ppts* EBITDA EBITDA margin Total cost to revenue ratio** * Excludes the impact of VSP, VERP and S189 costs of R270 million in the comparative y
Slide 13: Focused effort remains to contain mobile direct expenses
Focused effort remains to contain mobile direct expenses Direct expenses Mobile cost efficiency ratios Direct expenses Rm Rbn Mobile revenue 485 867 Costs to serve* / mobile 91 service revenue ratio 33.7% 27.7% 25. 0 40. 0% 30.0% 35. 0% 20. 0 30. 0% 25. 0% 15. 0 11 557 11 084 20. 0% 20.8 19.6 10. 0
Slide 14: Strong cost control and finance charges drive earnings growth
Strong cost control and finance charges drive earnings growth BEPS and HEPS movement Cents H1 FY20 Earnings improvement H1 FY21 driven by: H1 FY22 • Lower finance charges mainly due to lower and stable interest rates as well as the settlement of the SARS 575.3 561.5 536.6 529.1 liability in the prio
Slide 15: Continued acceleration of Fibre rollout and monetisation
Continued acceleration of Fibre rollout and monetisation Capex spend and intensity Capex investments allocation 11% Rm Capex spend % 2% 19.5 Capex intensity 2%5% 4% 5% 8% 11% 7% 29% 42% 35% FY20 FY21 FY22 18.0 47% 55% 37% 17.5 8 448 Fibre homes passed and connected 7 755 7 484 FY22 FY21 FY20 Fibre s
Slide 16: Spectrum and capex negatively impact cash flow performance
Spectrum and capex negatively impact cash flow performance Free cash flow (FCF) movement Decline in Free Cash Flow Rm FY22 FY21 % driven by: Cash generated from operations 9 886 14 383 (31.3) • Lower revenues Repayment of lease liability (1 076) (856) (25.7) • Increase in handset sales Interest rece
Slide 17: Healthy balance sheet post spectrum funding
Healthy balance sheet post spectrum funding Rm FY22 FY21 % Debt maturity profile Cash balances 3 239 5 002 (35.2) Call borrowings 3 000 Interest bearing debt 11 932 10 866 (9.8) Bonds Opening balance 10 866 12 005 9.5 Term loans Net funding raised/(repaid) (193) (1 132) (83.0) 2 500 Foreign loans Sp
Slide 18: Capital allocation prioritises growth
Capital allocation prioritises growth • Operational cashflow Sources of • Debt issuance - adequate debt capacity Capital • Value unlock proceeds • Opportunistic property disposal • Prioritise growth to ensure Total Uses of Optimal Shareholder sustainability of the business Performance Capital • Hurd
Slide 19: Financial framework to drive sustainable growth
Financial framework to drive sustainable growth Inputs Drivers Medium tern guidance FY2023 – FY2025 (CAGR) Outputs New revenue streams Mid single digit (Mobile, Fibre, Masts & Tower businesses) Revenue growth Sustainable cost Mid single digit management program Annual (roaming and legacy costs) EBIT
Slide 20: Strategic Review
4 Strategic Review Annual Results Presentation FY22 20
Slide 21: Group PIVOT strategy
Group PIVOT strategy P I V O T Portfolio Integrated Victory in Operational Technical diversification solutions broadband efficiency innovation Expand and invest in Offer end to end converged Become the leading Develop operational Modernise and build a e-commerce, big data, propositions from broadban
Slide 22: Strategic imperatives to enhance value
Strategic imperatives to enhance value Scale Capability Growth • Scale drives economics and • Critical skills to access underpins competitiveness adjacent opportunities Scale Capability • Enables market relevance in • Adjacent businesses allow our core business us to access new sources of growth Ann
Slide 23: Partnerships are critical to enable the Telkom Group strategy
Partnerships are critical to enable the Telkom Group strategy Partnership objectives Role of partnerships in driving Strategic themes • Access to new product & service offerings: Expanding & Access to strengthening – Cloud and cybersecurity services – 5G and IoT use cases capabilities value proposit
Slide 24: Our ESG strategy
Our ESG strategy ESG Vision Key Focus Areas ESG Commitments Operational • Become Carbon Neutral by 2035 We deliver E Environ- Efficiencies • Achieve Net Zero by 2040 ment • Enable responsible water consumption and energy usage by deploying utilities monitoring the Future of Digital Planet IoT device
Slide 25: Demonstrating our ESG commitment
Demonstrating our ESG commitment Key Focus Areas What we’ve been focused on Operational SBTi E-waste Water Buildings E Environ- Efficiencies • Set science based targets • ~2000 tonnes recycled • Consumption down 5% y.o.y. • Optimised HVAC roll-out ment and pathway to Net Zero underway Digital Planet
Slide 26: BU strategic focus areas
BU strategic focus areas • Accelerate mobile • Converged • Modernise the • Increase tenancy on • Optimise utilization on growth Communication network existing portfolio existing Data Centre • Drive high-speed fibre • Cloud platform • Commercialise the • Acquire strategic sites • Real Estate Portfoli
Slide 27: Value unlock
5 Value unlock Annual Results Presentation FY22 27
Slide 28: InfraCo, present significant value unlock opportunities
InfraCo, present significant value unlock opportunities Premises covered by Data Centres 5 960 Full portfolio of towers 2.5mill Fibre ready Nodes 10 Carrier Neutral Certified Tier 4 data 3 916 Productive Portfolio 839 691 Fibre to the home 3 out of 4 Tower assets centres in SA Growth Towers: ~11 M
Slide 29: Rationale for strategic options
Rationale for strategic options Value Scale & Growth unlock capabilities prospects • Affirm valuation of Swiftnet • Be part of a bigger M&T portfolio • Increase in tenancy and and Group sustainable revenue • Opportunity to access markets • Potential sale proceeds to reinvest outside South Africa • S
Slide 30: BCX Strategic Equity Partner (SEP)
BCX Strategic Equity Partner (SEP) Attributes Focused of the SEP Capabilities • similar aspirations to and alignment to BCX future • System integrator with capabilities mainly growth strategy in digital solutions • a comprehensive and complementary product • IOT, data analytics and automation portfo
Slide 31: Key strategic priorities
Key strategic priorities Strengthen our Strategic themes Strategic initiatives Core businesses • Invest in our infrastructure business to drive 5G Core • Broadband leadership – fixed and mobile Businesses • Accelerate migration from legacy to next generation Focus and capitalise to drive growth • Dr
Slide 32: Q&A Thank you
Q&A Thank you Annual Results Presentation FY22 32
Slide 33: Annexure: Detailed BU performance
Telkom SA SOC Ltd Annexure Detailed BU performance Annual Results Presentation FY22 33
Slide 34: Mobile subscriber growth and 4.5G integrated sites
10.5% growth in mobile subscribers 42.4% increase in 4.5G integrated sites Annual Results Presentation FY22 34
Slide 35: Solid performance against strong prior year
Solid performance against strong prior year Subscriber ARPU Mobile service Mobile EBITDA/ growth revenue margin Post-paid Post-paid Voice Mobile EBITDA 2 667 16 936 ‘000 Rm Rm Rm 2 580 15 326 Pre-paid Pre-paid Data Margin 17 505 16 938 2 563 11 995 27.9% 27.2% 3 934 12 593 104 4 942 4 727 90 91 18.6
Slide 36: Monetisation of broadband traffic
Monetisation of broadband traffic Mobile data Total mobile Mobile revenue broadband subscribers broadband traffic 12 563 Post-paid 12 211 Peta- Rm ‘000 bytes Pre-paid 5 183 8 659 5 180 3 854 10 651 10 256 8 163 7 380 7 031 2.9% 3.8% 3.3% 973 942 4 805 615 FY20 FY21 FY22 FY20 FY21 FY22 FY20 FY21 FY22
Slide 37: Ongoing network investment
Ongoing network investment Mobile sites 4.5G integrated Site integrated sites backhaul Fibre 7 313 Ratio 6 430 5 862 6 451 73% 4 342 13.7% 3 759 42.4% 68% 65% FY20 FY21 FY22 FY20 FY21 FY22 FY20 FY21 FY22 Annual Results Presentation FY22 37
Slide 38: 2.6% decline in Revenue to R15.3bn
2.6% decline in Revenue to R15.3 bn 1.9% decline in Operating expenses to R 13.1 bn Exception growth in Cybersecurity, IoT Solutions, Innovation and Technology Annual Results Presentation FY22 38
Slide 39: Financial performance under pressure
Financial performance under pressure Revenue EBITDA & margin Total Expenses Sales commission, Rm Rm Rm incentive, logistical costs, payment to other operators 15 271 Selling general and administration 2 253 13 354 13 105 Employee expenses 818 Service fees, 2 025 2 274 operating leases 673 Cost of ha
Slide 40: Converged comms nearing stabilisation
Converged comms nearing stabilisation Revenue Next-generation revenue Slow down of UC decline Rm CPE and Data access Legacy Rm CPE Sundry revenue Next- 1 257 8 387 Data Voice generation 1 032 7 351 1 271 7 274 Voice 34% 3 853 50% 3 277 71% 3 180 2 980 3 139 -17.5% 3 023 -6.3% 66% 1.1% 1.1% 50% 3 853
Slide 41: IT remains under pressure
IT remains under pressure Revenue Annuity revenue ratio Exceptional growth Rm Hardware Rm FY20 and Software 1 475 9 113 Application FY21 Solution 8 389 FY22 8 055 IT services 34.5% 19.3% 1 896 78% Existing 2 160 [65%: FY21| FY22 63%: FY20] 2 963 2 437 22% New [35%: FY21| 2 274 37%: FY20] 30.7% 162 1
Slide 42: FTTH connectivity rate and fixed broadband data growth
46.3% FTTH connectivity rate 16.6% growth Fixed line broadband data consumption Annual Results Presentation FY22 42
Slide 43: Stable financial performance
Stable financial performance Revenue EBITDA/EBITDA margin Enterprise1 Carrier1 Business Rm Rm Circuits Circuits 31.0% 31.0% 30.0% 7 000 31.0% 6 000 29.0% 41 368 40 791 39 443 5 000 27.0% 15 134 19 210 17 888 25.0% 4 000 15 582 13 485 13 428 23.0% 0.4% 3 000 0.3% 4.9% 7.4% 4 544 4 175 2 000 4 163 21.
Slide 44: Fixed broadband evolution
Fixed broadband evolution Fixed line broadband data consumption Fixed line broadband services Fixed line broadband connections Below 10Mbps Legacy Access Access Petabytes Subscribers Connections 10Mbps and higher Fibre Access 21% 34% 36% 51% 64% 70% 1 665 1 428 79% 1 113 66% 16.6% 64% 49% 36% 30% FY
Slide 45: Accelerated investment in fibre
Accelerated investment in fibre Homes passed with fibre Fibre homes connected1 950 0 00 400 0 00 850 0 00 350 0 00 750 0 00 650 0 00 300 0 00 550 0 00 389 109 839 691 250 0 00 450 0 00 200 0 00 281 065 549 957 350 0 00 455 553 219 583 250 0 00 52.7% 150 0 00 38.4% 100 0 00 150 0 00 50 00 0 50 00 0 F
Slide 46: Revenue growth and increase in productive portfolio
4.4% Revenue growth (at 70.4% EBITDA margin) 5.9% Increase in productive portfolio Annual Results Presentation FY22 46
Slide 47: Commercialised productive portfolio
Commercialised productive portfolio Tower portfolio (all site types) Productive portfolio growth (# of sites) (# of sites) -508 +243 +243 6 225 3 916 -26 5 960 3 699 Towers decommissioned in productive portfolio were supporting legacy Openserve legacy equipment (and are not capable of supporting MNO
Slide 48: Strong earnings performance
Strong earnings performance Revenue EBITDA* & margin* EBIT*^ PAT*^ Rm Rm Rm Rm 1 100 100.0% 1 000 95.0% 80.4% 900 90.0% 70.4% 85.0% 800 69.6% 80.0% 700 1 292 75.0% 1 237 600 994 1 160 909 70.0% 723 807 976 637 500 869 4.4% 8.6% 65.0% 11.0% 11.9% 796 451 400 60.0% 300 55.0% 200 50.0% FY21 FY22 FY20 F
Slide 49: Highly cash generative and lowly geared balance sheet
Highly cash generative and lowly geared balance sheet Cash generated from Capex FCF Net debt operations Rm Rm Rm Rm 1 140 1 119 366 687 239 1.8% 96.8% 24.9% 100% 516 756 422 186 135 0 0 FY22 FY20 FY21 FY21 FY22 FY20 FY21 FY20 FY22 FY21 FY22 FY20 Annual Results Presentation FY22 49