Telkom Sa Soc Ltd. · JSE:TKG
Telkom Sa Soc — FY2021 Earnings Presentation
50 slides from Telkom Sa Soc's earnings presentation, 2021
Slide 1: Annual Results Presentation 2021
2021 Telkom SA SOC Ltd Annual Results Presentation For the year ended 31 March 2021
Slide 2: Operating environment
Operating environment Telkom
Slide 3: Erratic economic activity due to COVID-19
Erratic economic activity due to COVID-19 Weak Competitive Regulatory economy landscape uncertainty • Consumers under significant pressure • Importance of fixed data services • Temporary spectrum alleviated COVID-19 pressure • Exchange rate volatility • Reduced effective fixed data pricing • Mobile
Slide 4: ~R100 million COVID-19 related spend
~R100 million COVID-19 related spend Employees Customers Government Communities • Supplied personal • Reduced data prices • Partner in developing a • Launched our education protective equipment • Increased speeds and COVID-19 management platform Lightbulb Education (PPE) to frontline broadband bundl
Slide 5: An evolved business
An evolved business Telkom
Slide 6: Key strategic themes underlying performance
Key strategic themes underlying performance Evolution Monetising of the business Infrastructure portfolio Formidable Broadband Mobile business leadership Annual Results Presentation FY2021 6
Slide 7: Solid strategy execution
Solid strategy execution > 65% >15m >51% Next generation of Group Mobile 3rd position FTTH business revenue in SA customers connectivity rate 1 428 56% 70%-80% petabytes M&T external of tenants Sites with fibre Fixed line tenants backhaul broadband traffic Annual Results Presentation FY2021 7
Slide 8: Group financial performance at a glance
Group financial performance at a glance Robust Resilient Improved earnings revenue profitability growth Strong cash De-risked generation balance sheet Annual Results Presentation FY2021 8
Slide 9: Our business today
Our business today Revenue contribution to group EBITDA contribution to group (%) (%) Fixed voice Next generation business FY2021 FY2021 Fixed data - new products Traditional business Fixed data - traditional 6% Mobile 15% Information technology Other 14% 43% 7% 13% 57% Annual Results Presentation F
Slide 10: Business performance
Telkom performance 7) wn 7) = 72) =} a
Slide 11: Covid-19 impact; Key strategic focus areas
Covid-19 impact Key strategic focus areas Accelerate mobile growth Drive high speed broadband Network expansion
Slide 12: Successful broadband leadership strategy
Successful broadband leadership strategy Mobile data revenue Total Mobile broadband subscribers Rm ‘000 12 211 Post-paid Pre-paid 10 256 8 163 6 377 25.6% 8 659 5 180 FY2019 FY2020 FY2021 5 917 3 854 Mobile broadband traffic Petabytes 2 965 7 031 4 805 942 2 952 41.0% 53.2% 615 362 FY2019 FY2020 FY2
Slide 13: Data-led network investment underpins growth
Data-led network investment underpins growth Mobile sites integrated Site backhaul Fibre Ratio 6 430 5 862 77% 5 116 73% 9.7% 8ppts 65% FY2019 FY2020 FY2021 FY2019 FY2020 FY2021 4.5G integrated sites Mobile core expansion & new elements Expansion New 24 4 342 3 759 2 859 15.5% 5 11 19 5 6 FY2019 FY2
Slide 14: Execution excellence
Execution excellence Subscriber growth Mobile service revenue ‘000 Post-paid Rm Voice 16 938 Pre-paid 15 326 Data 12 593 11 995 9 681 8 155 4 727 2 580 2 563 3 934 1 873 12 746 2 238 12 211 7 807 9 432 27.8% 5 917 8 659 34.5% FY2019 FY2020 FY2021 FY2019 FY2020 FY2021 ARPU EBITDA/margin Post-paid R R
Slide 15: Key strategic focus areas
Key strategic focus areas 79% of our sites are on fibre backhaul Build Digital platforms Build Financial services Utilise the fixed business as a springboard for growth
Slide 16: Our ecosystem of digital platforms
Our ecosystem of digital platforms Yep! SMB Financial services • Yep marketplace users grew by • Business Mobile revenue • Increased insurance gross 25% year on year (YoY) growth of 31% YoY written premiums of 23% YoY • 30% of our installed SME base • New customer acquisitions • Telkom Pay digital w
Slide 17: Key strategic focus areas
Key strategic focus areas Grow IT business Reduce cost to serve
Slide 18: Converged communications business
Converged communications business Revenue Next-generation revenue Revenue mix Data Access 9 072 40 8 387 Sundry revenue Services Legacy Customer Products Next - generation 7 351 49 1 198 premises 1 208 equipment 44 Data [5% : FY2020 | 4% : FY2019] 988 Voice 3 370 3% 50% 3 277 73% 71% 3 139 2021 12.3
Slide 19: Resilient IT business
Resilient IT business Revenue 23% [16% : FY2020 | 23% : FY2019] 9 113 8 866 Revenue 8 389 Hardware Services and Software Application mix 2021 Products 1 475 2 039 Solution 1 896 IT services 77% [84% : FY2020 | 77% : FY2019] 2 963 2 868 2 437 35% [37% : FY2020 | 47% : FY2019] 7.9% Annuity revenue 202
Slide 20: Improved profitability
Improved profitability EBITDA Total expenses Sales commission, 15 457 15 270 incentive, logistical costs, payment to 13 354 2 587 2 464 875 other operators 816 Selling, general and 2 311 administration 673 Employee expenses Service fees, 7 222 7 428 operating leases 5 995 Cost of handsets, equipment
Slide 21: Key strategic focus areas
Key strategic focus areas Modernise the network Commercialise the network Transforming service delivery
Slide 22: Monetising our fibre portfolio
Monetising our fibre portfolio Fibre to the home Fibre homes connected 1 Homes passed Connectivity rate 3 5 0 0 0 54% 51% 3 0 0 0 48% 44% 2 5 0 0 0 38% 34% 2 0 0 0 24% 549 957 281 065 455 553 430 659 14% 219 583 1 5 0 0 0 165 373 4% 20.7% 28.0% 1 0 0 0 5 0 0 -6% FY2019 FY2020 FY2021 FY2019 FY2020 FY
Slide 23: Boost in data consumption
Boost in data consumption Fixed line broadband data consumption Fixed line broadband connections Petabytes Access connections Below 10Mbps 10Mbps and higher 34% 51% 64% 1 428 1 113 66% 999 49% 28.2% 36% FY2019 FY2020 FY2021 FY2019 FY2020 FY2021 Annual Results Presentation FY2021 23
Slide 24: Data ecosystem evolution
Data ecosystem evolution Next generation technology Enterprise Services Business services 3.3% 66 810 59 279 40 791 39 443 49 786 33 802 12.7% FY2019 FY2020 FY2021 FY2019 FY2020 FY2021 Legacy technology Carrier Services Services 16.0% 72 746 17 888 15 582 108 359 12 509 86 617 14.8% FY2019 FY2020 FY
Slide 25: Commercial value propositions
Commercial value propositions Broadband product evolution Broadband price evolution Revenue per subscriber (monthly) Introduced Continue Rands Symmetrical to waive installation speed products 5.1% Initiatives FY2019 FY2020 FY2021 Minimum fibre PureConnect speed elevated Implemented launched Revenue
Slide 26: Key strategic focus areas
Key strategic focus areas Optimise and grow the masts & tower portfolio Commercialise the property portfolio Enhance building operation efficiencies
Slide 27: Masts & Towers portfolio
Masts & Towers portfolio 1 Towers 2 Tenants 3 Additional leases for the year Full portfolio Non-MNO 21% ~6,225 of towers third party tenants Anchor ~3,699 Productive Portfolio Tenant 44% (Telkom Tower assets Growth Towers: MNO third Mobile) 467 ~2,404 1 or less tenants party tenants Mature Towers: ~
Slide 28: Commercialising M&T portfolio
Commercialising M&T portfolio Revenue Operational expenses Rm Rm 31.9% 1 237 419 1 160 357 243 6.6% 778 FY2019 FY2020 FY2021 FY2019 FY2020 FY2021 EBITDA EBITDA margin Rm (%) 80.4% 69.6% 46.9% 23.2% 10.8 ppts 994 365 807 FY2019 FY2020 FY2021 FY2019 FY2020 FY2021 Annual Results Presentation FY2021 28
Slide 29: Financial overview
Financial overview Telkom
Slide 30: Key Group financial highlights
Key Group financial highlights Revenue EBITDA growth EBITDA margin 0.4% 11.7% 2.8ppts R43.2bn R12.0bn* 27.7%* R HEPS Free Cash Flow Net debt to growth 53.4% despite capex of R8.4bn 15.8% EBITDA 0.4x 561.5 cps* R2.1bn 0.9x * Excludes R270 million provided for VSP, VERP and S189 costs in FY2021 and R1
Slide 31: Mobile performance offsets COVID headwinds
Mobile performance offsets COVID headwinds Revenue by stream 25.1% (Rbn) FY2020 34.5% 0.5 FY2021 12.7% 0.5 22.2% 8,7 5.2 16,9 3.9 12,6 30.8% 5.7% 7,0 6,9 6,5 3.0 6,0 5,4 2.2 0,7 0,7 3,1 2,4 Mobile service revenue Information technology Fixed voice and Traditional fixed data New fixed data products G
Slide 32: EBITDA underpinned by sustainable cost management
EBITDA underpinned by sustainable cost management EBITDA movement EBITDA margin Rm 3 370 4 473 869 11.7% 138 (R1 253m) 2.8 ppts 927 230 11 973 27,7% 10 720 24,9% FY2020 Direct Operating Mobile Fixed revenue Information Other * FY2021 FY2020 FY2021 expenses expenses revenue technology revenue * Inclu
Slide 33: Direct expense optimisation
Direct expense optimisation Direct expenses Mobile cost efficiency ratios Rm Rbn Direct expenses Mobile revenue 2.0% Costs to serve* / mobile (R230m) service revenue ratio 53.2% 48.2% 39.1% 844 419 195 2 5 ,0 3 6 ,0 % 35,5% 3 5 ,0 % 2 0 , 33,7% 3 4 ,0 % 3 3 ,0 % 11 314 11 084 1 5 ,0 3 2 ,0 % 30,0% 1
Slide 34: Operating expenses decline from prior year
Operating expenses decline from prior year Operating expenses decline 4.3% Rm (R927m) 485 341 101 Restructuring 21 726 20 799 benefits - R986m, partially offset by employee benefits provision. FY2020 Employee expenses Other operating expenses Impairment of receivables FY2021 Operating expenses Opera
Slide 35: Robust underlying earnings growth
Robust underlying earnings growth BEPS and HEPS improvement Solid performance Cents Cents 53.4% 89.6% 53.4% 89.6% 355.7% 32,4 39,2 382,4 561,5 561,5 529,1 529,1 489,9 107,5 366,0 279,0 FY2020 FY2021 FY2020 FY2021 Reported Profit after Reported VSP, VERP Adjusted Headline Headline earnings tax earnin
Slide 36: Capex investments in key growth areas
Capex investments in key growth areas Accelerated capex Capex investments allocation Rm Capex spend (%) Fibre services* Capex intensity FY2021 8% Mobile 4% Information Technology Network sustainment 6% Subsidiaries and other 7 755 8 448 29% 18.0% 19.5% 5 506 4 238 3 517 25,7 2 942 19,7 16,3 13,7 53%
Slide 37: FCF generation sustained
FCF generation sustained Free cash flow (FCF) movement Rm FY2021 FY2020 % Cash generated from operations excluding VERP, VSP and section 189 package 15 592 12 931 20.6 cost payments Less: VERP, VSP and section 189 package costs paid (1 348) (175) (670.3) Cash generated from operations 14 244 12 756
Slide 38: De-risked balance sheet
De-risked balance sheet Cash balances Net finance charges and fair Borrowings (includes IFRS16) Rm FY2020 value movements FY2020 Rm FY2020 FY2021 Rm FY2021 FY2021 Net debt to EBITDA 15.3% 5.6% (R276m) 1,3 0,9 (R942m) 1 803 16 780 15 838 1 527 5 002 4 726 5.8% R276m Liquidity improvement from FY2021
Slide 39: Financial outlook
5 Financial outlook Telkom
Slide 40: Sustainable financial framework
Sustainable financial framework Grow Improve FCF Disciplined revenue profitability generation capex allocation • Grow new revenue • Sustainable cost • Net working capital • Capital & Operational streams management optimisation productivity • Migrate legacy to next - contain Opex • Handsets receivabl
Slide 41: New medium term guidance
New medium term guidance FY2022 – FY2024 guidance* Revenue (CAGR) Mid to high single digit EBITDA (CAGR) Mid to high single digit Capex per annum R8.0 billion to R8.5 billion Net debt to EBITDA (times) Less or equal to 1.0x • Excludes corporate actions and spectrum. The guidance provided has not bee
Slide 42: Disciplined capital allocation framework
Disciplined capital allocation framework 1 Inputs Annual Strategic Planning/Investment Strategy 4 Outputs 22 Sources Operational cashflow and cash release initiatives Debt Alternative Issuance Funding Solutions of Capital Total Optimal Maintain a strong balance sheet Performance Shareholder Returns M
Slide 43: Value unlock
6 Value unlock
Slide 44: Value unlock initiatives
Value unlock initiatives Masts and Data Openserve Towers Centres Separation Annual Results Presentation FY2021 44
Slide 45: Mast and Towers value unlock journey
Mast and Towers value unlock journey Established a Market Masts & TowerCo sounding exercise • Sale a leaseback from TKG to • Exploring different options Gyro Masts & Tower • Maximise shareholder value • Commercialised the portfolio • Enhance Telkom M&T strategy • Independent valuation Annual Results
Slide 46: Grow data centre business
Grow data centre business Grow scale and Utilise the existing suitable capacity of existing exchange infrastructure for data centres Edge Data centres Strategically introduce Establish management new, large scale data capacity for a co-location centres for colocation datacentre business Annual Resul
Slide 47: Openserve separation
Openserve separation Further progress on Balance sheet split nearing separation of Openserve completion as a standalone entity Finalising of intra Legal and regulatory group arrangements considerations and shared services Annual Results Presentation FY2021 47
Slide 48: Outlook
7 Outlook
Slide 49: Key focus areas - PIVOT
Key focus areas - PIVOT P I V O O T Portfolio Integrated Victory in Operational Technology diversification solutions broadband efficiency innovation Grow end-to-end enterprise solutions Maintain Accelerate Improve Increase uptake of mobile access customer digital lifestyle services broadband to fibr
Slide 50: Thank you Q&A
Thank you Q&A