Telkom Sa Soc Ltd. · JSE:TKG
Telkom Sa Soc — H1 FY2012 Earnings Presentation
35 slides from Telkom Sa Soc's earnings presentation, November 2011
Slide 1: Telkom SA Limited Group Interim Results Presentation
Telkom SA Limited Group Interim Results Presentation For the six months ended 30 September 2011 Maximising the capabilities of fixed and mobile technologies and select value-added IT services
Slide 2: Overview
Overview Nombulelo Moholi Maximising the capabilities of fixed and mobile technologies and select value-added IT services
Slide 3: Special note regarding forward looking statement
Special note regarding forward looking statement Many of the statements included in this document, as well as oral statements that may be made by us or by officers, directors or employees acting on behalf of us, constitute or are based on forward looking statements. All statements, other than statem
Slide 4: Overview
Overview • Business under pressure ─ Voice continues to decline ─ data flat to down • Fixed-line containing costs and increasing EBITDA margin from 37.5% to 39.1% • Mobile products positively received but revenue behind budget • Network transformation gathering steam • Business - building on converg
Slide 5: Group financial features – continuing operations
Group financial features – continuing operations (3.2%) 16 926 16,387 (16.7%) 5,295 4,413 (464.9%) (35.5%) 1,158 297.0 191.7 205 Operating Revenue EBITDA HEPS Mobile Operating loss Sep-10 Sep-11 5
Slide 6: Business and ICT strategy
Business and ICT strategy • Fixed line voice under pressure – mobile substitution, termination rate cuts, competition and VoIP • Data revenue growth slowing – customers more cost conscious, cheaper technology • Need to provide enhanced value proposition through ICT services and higher bandwidths • M
Slide 7: Business and ICT strategy
Business and ICT strategy Four product journeys to create the future • Managed Unified Communications (UC) • Fixed Mobile Convergence (FMC) Fixed line Converged personal • SIP Trunking technology communication • Hosted Communication Services • Integrated Billing • Virtual desktop computing and suppo
Slide 8: Business & ICT Strategy
Business & ICT Strategy • Based on accessibility, growth potential and strategic fit, we will pursue ICT in four core areas – ─ Unified communication ─ Cloud services (IaaS and SaaS) ─ LAN management ─ IS Outsourcing • ICT is biggest growth sector in SA over next 5 years • Considering ICT acquisitio
Slide 9: Go-to-market
Consumer strategy media rich content & technology enablers • Targeted double & triple play • Enable target offering through Product offering: Product offering: offerings with on-demand high speeds and caps services ─ Consistently more value (speeds media-rich content and and caps) for same price ─ U
Slide 10: Telkom Mobile – 8.ta aspirations and successes
Telkom Mobile – 8.ta • Asymmetrical termination rate Successes to • Over 1 million RICAed subscribers date • Strong performance of post-paid • Disruptive data offerings – very well received • Successful launch of Telkom Business Mobile • Achieve 12% - 15% revenue market share by Aspirations FY2016/1
Slide 11: Telkom Mobile - 8.ta challenges
Telkom Mobile - 8.ta Challenges to date: • Below target performance on pre-paid • Difficult to communicate 8.ta innovation and value given competitor noise • Lengthy negotiation to secure distribution channels • Slower network rollout, delays in tower sharing agreements • Complex IT projects leading
Slide 12: Telkom Mobile – 8.ta
Telkom Mobile – 8.ta Short term plans: • Improve distribution through innovation and negotiation • Ramp up marketing and improve communication • Aggressively pursue network roll-out • Leverage fixed customer base • Integrate sales force with Consumer and Enterprise units New opportunities: • Lead mo
Slide 13: Telkom Mobile – 8.ta
Telkom Mobile – 8.ta Total RICAed subscribers – 2,203,419 Subscribers ARPU MOU 11-Mar 11-Sep 11-Mar 11-Sep 11-Mar 11-Sep Pre-paid - active 440,775 882,888 15.86 20.47 10 21 Post-paid - active 32,829 257,407 238.57 286.09 235 109 Total Blended - active 473 604 1 140 289 22.6 63.32 19 36 • Revenue - R
Slide 14: Network transformation
Network transformation • Competition, changing customer needs and end-of-life technologies make network transformation an imperative • Creating one all IP network for fixed and mobile convergence and super-fast, quality broadband ─ Revamp access – enable fast broadband, leverage FTTx ─ Enhance aggre
Slide 15: Strategic priorities
Strategic priorities Over the next 5 years we aim to become • An established mobile operator with 12% to 15% revenue market share • No. 1 provider of fixed and converged communication and network service to the business market • No. 2 player in Cloud services to business market • Broadband provider
Slide 16: KT Corporation transaction – strategic benefits
KT Corporation transaction Strategic benefits Telkom KT • De-risk the execution of current • Creates a building block to business plan and accelerate key developing a footprint into strategic projects Africa • Enable growth in broadband penetration • Further diversifies and • Transform business capa
Slide 17: KT: innovative changes
KT Leadership Launched the first Fully Privatised Launched IPTV History satellite (1995) (2002) (2008) Established Established Mobile Launched 3G Service Merged mobile (1981) subsidiary (1996) (2007) subsidiary (2009) • Fixed Mobile Convergence • Merger with the mobile subsidiary Innovative changes
Slide 18: Expected broader benefits to South Africa
Expected broader benefits to South Africa • Revitalisation of key national strategic asset • Increasing ICT industry competitiveness • National broadband implementation plan • Skills development and skills transfer • Enhanced positioning of SA as investment destination • Social agenda boost • e-Educ
Slide 19: Why this deal makes sense
Why this deal makes sense • Both Companies share a similar history ― KT is 10 years ahead in dealing with the challenges that Telkom currently faces • The countries have faced similar economic and social challenges ― South Korea has made substantial progress on enhancing economic wealth, education a
Slide 20: Financial overview
Financial overview Jacques Schindehütte
Slide 21: Salient features
Salient features • Headline earnings of 191.7 cents per share 35.5% • Return on assets of 7.4% 56.7% • Capex to revenue of 11.0% 7.6% • Fixed-line operating expenses of R11.7bn 3.9% • Net debt to EBITDA remaining at 0.5x • Free cash flow of R1.5bn 21
Slide 22: Group statement of comprehensive income
Group statement of comprehensive income ZAR million Sept 10 Sept 11 % Operating revenue 16,926 16,387 (3.2) Other income 183 218 19.1 Operating expenses 14,213 15,382 (8.2) Operating profit 2,896 1,223 (57.8) Investment income 133 111 (16.5) Finance charges and fair value movements 649 264 59.3 Taxa
Slide 23: EBITDA contributors
EBITDA Sept 2010 5,295 Mobile (820) ZAR million Corporate Centre (168) EBITDA contributors (5) Swiftnet (3) Trudon 10 iWayAfrica (R882 million) Telkom 15 international Data Centre 23 Operations 66 Fixed-line 4,413 EBITDA Sept 2011 23
Slide 24: Finance charges and fair value movements
Finance charges and fair value movements ZAR million Sept 10 Sept 11 % Finance charges on interest-bearing debt 504 379 24.8 Local debt 563 445 21.0 Foreign debt 3 1 66.7 Less: Finance charges capitalised (62) (67) 8.1 Foreign exchange gains and losses and fair 145 (115) 179.3 value movement Foreign
Slide 25: Group statement of financial position
Group statement of financial position ZAR million Mar 11 Sept 11 % Non-current assets 43,943 42,409 (3.5) Current assets 10,315 9,713 (5.8) 0.5 0.5 Assets of disposal group held for sale 89 333 274.2 Total assets 54,347 52,455 (3.5) Net debt to EBITDA Total equity 30,022 29,566 (1.5) Mar 11 Sept 11
Slide 26: Group free cash flow
Group free cash flow ZAR million Sept 10 Sept 11 % Cash generated from operations 1,883 2,964 57.4 Add back: Multi-Links operating cash flows 406 75 (81.5) Less: Cash flows from investing activities (2,102) (1,609) (23.5) Add back: Multi-Links cash flows from investing 173 21 (87.9) activities 1 Fre
Slide 27: Fixed-line revenue
Fixed-line revenue (3.9%) 15 968 15 345 (5.0%) (7.9%) 6 032 3.5% 5 728 5 550 5 114 3 415 3 300 (8.6%) 912 834 Total Subscription and Traffic Interconnect Data connection Sept 10 Sept 11 27
Slide 28: Fixed-line traffic revenue and volumes
Fixed-line traffic revenue 1.2% Traffic revenue 2 574 2 543 (14.0%) ZAR million 1 461 (9.3%) 1.5% 1 257 (23.0%) 55.9% 819 809 807 734 378 291 53 34 Local Long distance Fixed-to-mobile Fixed-to-fixed International Calling plans outgoing Sept 10 Sept 11 Traffic volumes (19.2%) (7.4%) Millions of minut
Slide 29: Data revenue and subscribers
Data revenue 13.7% 3.9% Subscribers 795 419 699 368 Subscribers 556 886 535 794 12.6% Sept 10 Sept 11 37 181 33 023 Managed data network sites ADSL Internet all access ZAR million Sept 10 Sept 11 % Data connectivity 2,707 2,670 (1.4) Leased line facilities 1,116 1,069 (4.2) Internet access and relat
Slide 30: Group operating expenses
Group operating expenses 5.4% 4 799 4 542 (33.0%) (26.7%) 4.8% 3 191 3 124 2 788 2 653 (6.0%) 2 465 2 399 1 476 1 392 (7.3%) 397 370 Employee Payments to SG&A Service fees Operating leases Depreciation, expenses other operators amortisation, impairments and Sept 10 Sept 11 write-offs 30
Slide 31: Group operating expense drivers
Group operating expense drivers Category Segment Driver Employee expenses Fixed-line Lower headcount and savings due to voluntary severance packages offered in prior year Fixed-line Expected return on plan assets of the Telkom Retirement Fund higher than interest cost Mobile Higher 8·ta headcount Pa
Slide 32: Group capital expenditure
Group capital expenditure ZAR million Sept 10 Sept 11 % Access network 148 125 (15.5) Legacy 67 88 31.3 Next generation network 356 386 8.4 Fiber 159 151 (5.0) International 199 110 (44.7) Information operations 50 5 (90.0) Customer premises equipment 106 122 15.1 Facilities 129 80 (38.5) Other 75 8
Slide 33: Group debt comparison
Group debt comparison ZAR million Mar 11 Sept 11 Movement TL12 1,059 1,060 1 TL15 1,159 1,159 - TL20 1,431 1,460 29 Commercial paper - 99 99 Syndicated loan 3,271 1,993 (1,278) Foreign loans 520 614 94 Finance leases 904 877 (27) Telkom Company 8,344 7,262 (1,082) Subsidiaries 11 8 (3) Group debt 8,
Slide 34: Debt maturity as at 30 September 2011
Debt maturity as at 30 September 2011 Sept 11 Maturities ZAR million Current Targeted Maturing in the 2011 calendar year Commercial paper bill 100 100 Maturing in the 2012 calendar year TL12 bond 1,060 1,060 Foreign loans 134 134 Maturing in the 2013 calendar year Syndicated loan 2,000 2,000 Foreign
Slide 35: Guidance
Guidance Capex to revenue Expected to range between 15% and 20% of revenue Net debt to EBITDA Targeted ceiling is aimed at 1.4x 35