Slide 1: Group Annual Results
Telkom SA SOC Limited Group Annual Results For the year ended 31 March 2016
Slide 2: Agenda
Agenda 01 Introduction 02 Business performance 03 Financial overview 04 Conclusion
Slide 3: Introduction
Introduction 01
Slide 4: Our purpose
Our purpose Leading in the converged ICT market through deep and credible relationships • The largest and most reliable network in South Africa • The backbone of the banking industry • The only truly converged operator in the market 4
Slide 5: Operating environment
Operating environment Economic environment remains fragile • GDP growth slowing • Consumers and corporates under pressure • Currency volatility Intensified competitive landscape • Increased number of fibre players • Margins under pressure Regulatory environment uncertain • Policy unclear • Consolida
Slide 6: Recap of the turnaround phase
Recap of the turnaround phase Addressed the key issues affecting performance The key issues Key actions Sustainable cost efficiency measures; disciplined capital Cost and capital efficiencies > allocation; very strong balance sheet Telkom mobile unsustainable > De-risked mobile Uncertain regulatory
Slide 7: Solid execution of our turnaround strategy
Solid execution of our turnaround strategy A good foundation for growth Mobile EBITDA loss Group operating revenue 2.5 Rm 38 Rm 37.33 2.16 2.0 36 1.5 1.33 34 32.76 31.68 31.29 1.0 0.68 32 0.5 30 0.04 0.0 28 2013 2014 2015 2016 2013 2014 2015 2016 ‘000 Headcount (Company) Employee expenses (Company)*
Slide 8: Strengthening the core business
Strengthening the core business Operational and financial assertion • Launch of Openserve • Acquisition of BCX • Strong balance sheet • Net debt to EBITDA of 0.1x • Solid cash balance • Re-instated dividend • Social impact • FutureMakers • Telkom Foundation 8
Slide 9: Ongoing focus on customer experience
Ongoing focus on customer experience Transformation initiatives: short term challenges to ensure long term gain • Established customer experience unit and introduced NPS • Outsourced call centres • Change in vehicle fleet • Journey to address complex legacy IT systems • Focus on digital and self-hel
Slide 10: Business performance
Business performance 02
Slide 11: Financial highlights
Financial highlights Strong financial performance in FY2016 HEPS up 15.5%* Operating revenue up To 657.9 cents EBITDA improved 13.9% Employee expenses 16.1%* (company) down to R11 billion 9.6%* Margin of Mobile service revenue up 29.3%* Dividend of 39.3% 270cps *Excluding voluntary early retirement
Slide 12: Consumer Mobile – a great story to tell
Consumer Mobile – a great story to tell Strong operational performance by Mobile Active mobile subscribers (Mill) Blended ARPU (Rand) Data revenue (Rm) 3,500 100 +19% 2,000 3,000 +24% +59% 80 89 2,500 1,500 2,707 75 1,575 2,000 60 2,187 63 1,000 1,500 1,780 40 988 1,000 500 20 656 500 - - - FY14 FY1
Slide 13: Consumer: Fixed
Consumer: Fixed Broadband-led product evolution • Fixed revenue returned to growth • Data revenue increased by 8.7% year on year • Accelerated demand for fibre • Growth in fixed broadband • Continued upselling to DSL customer base • Simplification and streamlining of product offering 13
Slide 14: Openserve
Openserve Product and pricing evolution: driving growth and competitiveness Revenue stabilised and growing Long term revenue growth > Churn reduced New connections increasing Increase in total broadband market Grow broadband market > Lower entry-level point Increase bandwidth New orders from MNOs Sl
Slide 15: Openserve
Openserve Effective utilisation of our vast network • Migrating from old to new efficient technology 81 503 homes passed with FTTH • More than 850 gated communities covered with fibre 136% • Data connectivity revenue gains traction Increase in Megaline – ATM & Megalines revenue up 46% bandwidth capa
Slide 16: Enterprise
Enterprise Transition from legacy to new products • Proactively defended and de-risked legacy voice revenues • Metro Ethernet revenues grew 55% • Good growth in Unified Communications • Converged bundle sales grew 58% year on year • Cross-sell of BCX services to Telkom customers 16
Slide 17: BCX: Strong performance...
BCX: Strong performance... … despite constrained operating environment • Revenue grew 17% for the 7 months • Solutions and service delivery grew 11%, offset by 5% decrease in technology and sourcing revenue • Integration and merger synergies being realised • Good recovery in EMEA – revenues up by 40
Slide 18: Financial overview
Financial overview 03
Slide 19: Developments in FY2016 affecting the financial results
Developments in FY2016 affecting the financial results • Prior year adjustment – Reassessment of the Telkom Retirement Fund (TRF) pensioner liability • BCX incorporated – 7 months • Trudon – reclassified as a continuing operation • VERP/VSP impact of R2.2 billion and tax effect of R517 million • Gai
Slide 20: Normalised earnings
Normalised earnings March March % 2016 2015 Profit for the period 2 376 3 184 (25.4) VERP/VSP cost 2 193 591 271.1 Tax on VERP/VSP cost (517) (165) 213.3 Tax on PRML - (546) - Normalised profit for the period 4 052 3 064 32.2 Normalised headline earnings 657.9 569.7 15.5 per share 20
Slide 21: Successful execution of our transformation initiatives
Successful execution of our transformation initiatives Revenue stabilisation and growth Strengthened balance sheet • Migration of customers to new services • Sale of non-core properties and products • Exited head office complex and • Fibre and LTE rollout intensified onerous lease obligation • Signi
Slide 22: Key financial indicators
Key financial indicators March March % 2016 2015 Operating revenue 37 325 32 760 13.9 Net revenue 27 563 26 581 3.7 Operating expenses 17 890 17 880 (0.1) ~ EBITDA 10 954 9 432 16.1 Capital investments 6 090 5 214 16.8 Normalised free cash flow 3 900 3 898 - ~ 22
Slide 23: Quality of earnings
Quality of earnings March March % 2016 2015 Profit for the year 2 376 3 184 (25.4) Gain from property, plant and equipment (704) (257) (173.9) Severance package cost 2 193 591 271.1 Profit of the sinking fund (9) (221) (95.9) Tax benefit of PRML payment to insurer - (546) - Reversal of provision for
Slide 24: EBITDA
EBITDA Normalised EBITDA movement Rm R1 522 16.1% 163 113 550 982 (223) (63) 9 432 10 954 FY2015 SG&A Operating Net revenue Other income Employee Service fees FY2016 EBITDA leases expenses EBITDA 24
Slide 25: Reduced dependence on voice
Reduced dependence on voice Contribution to group revenue (%) 5% 28% 35% 4% Voice usage and 2015 22% interconnection Subscriptions 8% 24% 39% 2016 CPE 5% 30% Data 23% 34% 2014 Other 12% 7% 24% 25
Slide 26: Net revenue movement
Net revenue movement Rm R982 m 3.7% 439 370 338 (642) 310 119 89 (111) 70 26 581 26,416 27 563 FY2015 Voice Direct CPE Other Data BCX PTO Cost of Mobile FY2016 Net and cost sales Net revenue inter- revenue connection 26
Slide 27: Declining voice revenue addressed through bundled and subscription based products
Declining voice revenue addressed through bundled and subscription based products and services Rm 1.9% 15 589 15 299 5.2% 2015 8 005 8 421 2016 12.2% 6 867 6 029 18.4% 717 849 Total voice and Fixed voice usage Fixed voice subscriptions Mobile voice and subscriptions subscriptions 27
Slide 28: Growth in data volumes
Growth in data volumes Broadband (‘000) Mobile data and smart phone (‘000) Thousands 2.2% Subscribers 42.2% Thousands 1 028 1 005 1 891 932 1 330 922 2014 2015 2016 2014 2015 2016 Broadband traffic volumes Mobile data traffic (Tbytes) (Tbytes) 38.7% 72% 471 958 37,307 340 225 241 558 21,700 154 297
Slide 29: Operating cost containment
Operating cost containment Operating cost down 5.7% Rm ~ 0.1% excluding BCX 17 880 17 890 Forex impact on our FY2016 operating expenses – circa R250m 2015 1.8% 2016 8 871 8 708 4.7% 4 755 4 978 3.5% 3 219 3 106 6.1% 1 035 1 098 Total operating costs Employee expenses SG&A Service fees Operating leas
Slide 30: Transformation initiatives – Reduce and variabilise a rigid cost base
Transformation initiatives – Reduce and variabilise a rigid cost base Employee expenses (Rm) Staff cost to revenue (pts) 29.0 9 031 8 752 27.7 9.6% 3.0 pts 7 914 24.7 2014 2015 2016 2014 2015 2016 Property management (Rm) Vehicle leases (Rm) 1 934 21.5% 514 12.2% 1 741 484 1 518 425 2014 2015 2016 2
Slide 31: Increased capital expenditure to facilitate growth
Increased capital expenditure to facilitate growth March March % 2016 2015 Key focus areas: Fibre to home 757 252 200.4 Mobile 660 481 37.2 OSS/BSS programme 544 404 34.7 Network rehabilitation/sustainment 674 429 57.1 Service on demand 1 540 1 492 3.2 Next generation network 553 857 (35.5) 31
Slide 32: Strong cash position – Platform to enable growth
Strong cash position – Platform to enable growth March March % 2016 2015 Cash sources Opening cash balance 3 642 1 841 97.8 Cash flow from operating activities 8 153 6 402 27.4 Significant cash applications Dividend paid (1 402) (121) (1 058.7) BCX acquisition (2 654) - - Cash paid on capital expend
Slide 33: Guidance: Growth at lower margins
Guidance: Growth at lower margins F2016 F2017 F2018 F2016 (A) guidance guidance guidance Modest Modest Net revenue Stabilise +3.7% growth growth EBITDA margin 24% - 26% 23.5%* 23% - 25% 23% - 25% Capex to revenue 15% - 18% 16.3% 15% - 18% 14% – 17% Net debt to EBITDA ≤1 0.1 ≤1 ≤1 During R43m Achieve
Slide 34: Conclusion
[retom | Conclusion
Slide 35: Telkom Business Connexion: growth beyond connectivity
Telkom Business Connexion : growth beyond connectivity Leveraging joint and complementary capabilities • Reverse integrating Telkom Business into BCX • Earlier and enhanced realisation of synergies • Avoid creation of parallel organizations and cultural silo • Shorter period of uncertainty for staff
Slide 36: Business Connexion
Business Connexion Africa’s premium end-to-end digital partner Key Business Connexion Performance Indicators • Advance unified comms • New technology revenues • Lead in the Internet of Things • Telkom | BCX synergies • Offer cloud to simplify • Embed entrepreneurial culture customer solutions • Cons
Slide 37: Consumer
Consumer Aggressive product substitution Key Consumer Performance Indicators • High speed broadband growth • Broadband on the back of LTE & Fibre subscriber growth • Continued Mobile growth • Improve ARPU through disruptive data led • Improve mobile revenue propositions share • Launch digital servic
Slide 38: Trudon
Trudon Combining search, display & digital marketing Key Trudon Performance Indicators • Mobile Ad Exchange Network • New ad revenue Coverage • Contextual advertising • Expanding Omni-Channel • Expand customer base beyond offerings SME • Establish E-Commerce market place • Expand partnership to OTT
Slide 39: Openserve
Openserve Technology, product and pricing evolution Key Openserve Performance Indicators • Continue to modernise the • Operational effectiveness network (assurance and installations) • Product and pricing • Intensify deployment transformation and connections • Grow broadband penetration • Drive retu
Slide 40: The Telkom Foundation
The Telkom Foundation Our success is inextricably linked to the success of South Africa therefore community interventions are purposefully aligned to the National Development Plan We invest in education, with a focus on Math, Science and Technology. In 2015, the Foundation spent R50m in supporting p
Slide 41: FutureMakers 2015/16 performance in numbers
FutureMakers 2015/16 performance in numbers 1 621 Businesses touched through the FM Programmes 203 Supported 14 11 11 businesses with BDS support Cisco partnership 3rd Party dealers (R37m) FutureFund 866 3 367 1215 IFT programme FutureHub TechSavvy Total enquiries
Slide 42: To compete we must shift our culture…
To compete we must shift our culture… …and change the ways we do things From “old” Telkom behaviours Towards the Telkom of tomorrow • Working slowly > • Quick cycle times • Working in small, hierarchical silos > • Collaborating to compete • Protecting ideas and knowledge > • Rapid knowledge dissemin
Slide 43: In closing
In closing • •Seamlessly Weare We areembarking embarking onthe connecting on the nextAfricans South next phase, to a better life the transformation phase, to grow the transformation to our grow business our business ORGANISATION CULTURE • • Investing Investingininnext nextgeneration generation produ
Slide 44: Thank you
Thank you Questions? telkomir@telkom.co.za