Telkom Sa Soc Ltd. · JSE:TKG
Telkom Sa Soc — H1 FY2017 Earnings Presentation
39 slides from Telkom Sa Soc's earnings presentation, Nov 15, 2016
Slide 1: Group Interim Results
Telkom SA SOC Limited Group Interim Results For the six months ended 30 September 2016
Slide 2: Contents
Contents 1 Introduction 3 Financial overview 2 Business performance 4 Conclusion
Slide 3: Introduction
1 Introduction
Slide 4: Delivering against difficult trading environment
Delivering against difficult trading environment ECONOMIC COMPETITIVE REGULATORY ENVIRONMENT LANDSCAPE ENVIRONMENT • Limited GDP growth • Increased number of fibre • Spectrum • Consumers under pressure players • ICT Policy • Volatile currency • Consolidation in the market • Cost to communicate • OTT
Slide 5: Customer Experience remains a key priority
Customer Experience remains a key priority SYSTEM UPGRADES PROCESSES STORE INITIATIVES CALL CENTRES • Reduce time to • Fulfilment • Queue management • Improved First Time capture, process and • Assurance system Resolutions vetting • Customer call back • Reduced call volumes • Billing • Paperless app
Slide 6: Business performance
2 Business performance
Slide 7: Group financial highlights
Group financial highlights Operating Mobile service EBITDA revenue up revenue up Margin 20.6% 36.7% 26.1% Interim HEPS up EBITDA up Dividend of 19.7% * 4.6%* 131 cps *The prior corresponding period numbers exclude voluntary early retirement and severance packages of R1 523 million and the related ta
Slide 8: Openserve
N open )serve
Slide 9: SA’s leading and largest broadband and data provider
SA’s leading and largest broadband and data provider Openserve’s brand positioning is about We provide a diverse connections. Connecting wholesale product technologies, businesses, portfolio over our high people and the world quality open access around us. network. We believe in a market that encour
Slide 10: Leading in the fibre market
Leading in the fibre market Fibre to the Fibre to the Openserve has passed over Home Business 2 million premises providing high speed broadband connectivity using fibre 144 512 42 176 with connectivity end points rate of 13% terminating Fibre to the Fibre to the Cabinet >1.8 m ˷5 600 Base Stations h
Slide 11: Improved network consumption
Improved network consumption Fixed line broadband1 TB +38.2% 350,000 300,000 250,000 200,000 150,000 296,452 100,000 214,557 160,196 50,000 0 H1 2015 H1 2016 H1 2017 1. Access links Telkom H1 17 | 15 November 2016 11 11
Slide 12: Business Connexion
Is your business ready for tomorrow’s Business Connexion customers? Meet the future today with Telkom and Business Connexion.
Slide 13: Africa’s premium end to end digital partner
Africa’s premium end to end digital partner Unmatched Data Centres Unrivalled ICT Solution Set Industry Vertical Leadership • 3 Tier 1V designed data • Proven ICT capabilities • Market leader in Retail, centres • Market leadership position Mining, Manufacturing, on IT and telecommunication Banking a
Slide 14: Synergies realised
Synergies realised Key achievements 32% 27% • Launched Cisco Hosted Collaboration solution • Launched SAP HANA Enterprise Cloud Services growth in Metro-Ethernet IT Business revenue service revenue • Creation of bundled solutions including fixed, wireless, mobile connectivity and IT services • Award
Slide 15: Consumer
Consumer
Slide 16: Initiatives underpinning good performance
Initiatives underpinning good performance MOBILE FIXED SMALL BUSINESS • Product innovation - FreeMe, • Re-engineering of processes • Launch of Voice and Data Smart broadband for simplicity Failover • Extension of distribution • Upselling the DSL base faster • Always-on to Small Business channels and
Slide 17: A good foundation for growth
A good foundation for growth Mobile EBITDA Mobile service revenue +37% Rm R’000 400 214 2000 1,594 200 1500 1,166 0 830 1000 -200 H1 2015 H1 2016 H1 2017 -400 -37 500 -600 H1 2015 0 -385 H1 2015 H1 2016 H1 2017 Mobile customer growth ‘000 +42% Prepaid Postpaid 4000 3000 976 2000 429 681 1000 2,237 1
Slide 18: Broadband strategy underpins solid performance
Broadband strategy underpins solid performance Mobile broadband revenue +43% R’000 1,200 1,018 1,000 800 711 600 422 400 200 0 H1 2015 H1 2016 H1 2017 Mobile broadband customers ‘000 +44% 3,000 Mobile broadband Smartphone users 2,000 670 458 1,000 343 1,605 1,117 711 0 H1 2015 H1 2016 H1 2017 Telkom
Slide 19: Fixed and Small Business
Fixed and Small Business FIXED BUSINESS • Significant demand for fibre • Migration from ADSL/VDSL to fibre SMALL BUSINESS • Fail Over • Always On • Smart Virtual Office solution Telkom H1 17 | 15 November 2016 19
Slide 20: Focusing on attracting and growing talent
Focusing on attracting and growing talent REWARDS RECRUITMENT & TRAINING LEADERSHIP & DEVELOPMENT • Performance Pay – up to 12% • Bright Young Minds • Bursaries • Performance Management • Internships • Female Leadership • All employees are shareholders • Training - Retail staff and • Development pla
Slide 21: Foundation FutureMakers
Empowering youth through education and entrepreneurship Foundation FutureMakers Main focus is on Education Enterprise and Supplier Development Program 43 20 R24.4m schools R117m Black owned businesses connected Invested into allocated to through our IFT FutureMakers education programme 543 1 000 Tec
Slide 22: Financial overview
3 Financial overview
Slide 23: Developments in the first half of FY2017
Developments in the first half of FY2017 Mobile Mobile EBITDA profitability BCX inclusion for six months BCX Capex deployment 185% growth in capex deployment to priority areas Dividend policy and interim dividend Interim dividend Telkom H1 17 | 15 November 2016 23
Slide 24: Normalised earnings
Normalised earnings Sept 2016 Sept 2015 % Profit for the period 1 821 606 200.5 VERP/VSP cost - 1 523 - Tax on VERP/VSP cost - (446) - Normalised profit for the period 1 821 1 683 8.2 Normalised headline earnings per share 336.0 280.6 19.7 Telkom H1 17 | 15 November 2016 24
Slide 25: Key financial indicators
Key financial indicators Sept 2016 Sept 2015 % Operating revenue 20 237 16 782 20.6 Net revenue 13 849 13 404 3.3 Operating expenses 8 978 8 929 (0.5) ~ EBITDA 5 272 5 040 4.6 Capital investments 3 639 2 335 55.8 Normalised free cash flow 241 1 445 (83.3) Telkom H1 17 | 15 November 2016 25
Slide 26: Quality of earnings
Quality of earnings Sept 2016 Sept 2015 % Profit for the period 1 821 606 200.5 Gain from property, plant and equipment (143) (282) 49.3 Severance package cost - 1 523 - (Profit)/Loss of the sinking fund (90) 60 (250.0) Tax on VERP/VSPs - (446) - Adjusted profit for the period 1 588 1 461 8.7 Telkom
Slide 27: EBITDA
EBITDA Transformation initiatives bearing fruit R232m Normalised EBITDA movement 4.6% Rm 66 115 119 * (349) 445 (164) 5 040 5 272 Sept 2015 EBITDA SG&A Other income Net revenue Employee Operating leases Service fees Sept 2016 EBITDA expenses *Company reduction of R608 million Telkom H1 17 | 15 Novem
Slide 28: Growth in strategic focus areas
Growth in strategic focus areas Net revenue movement R445 m Rm 3.3% 49 85 86 96 255 (332) 320 (73) (41) 13 404 13,629 13 849 Sept 2015 Voice and Trudon Other BCX Mobile Cost of sales PTO Data CPE Sept 2016 Net revenue inter- Net revenue connection Telkom H1 17 | 15 November 2016 28
Slide 29: Retaining traditional revenue while focusing on growth
Retaining traditional revenue while focusing on growth Rm 5.0% 7 829 7 440 1.7% 5 012 5 097 639.7% 3,617 36.7% 1 594 1 166 489 Fixed voice and subscriptions Data Mobile service revenue BCX 2015 2016 Telkom H1 17 | 15 November 2016 29
Slide 30: Growth in subscriber and data volumes
Growth in subscriber and data volumes Metro-Ethernet Mobile broadband Subscribers ‘000 Subscribers ‘000 34.3% 44.5% 3,090 4,102 5,509 1,054 1,575 2,276 Sept 2014 Sept 2015 Sept 2016 Sept 2014 Sept 2015 Sept 2016 Broadband traffic volumes Mobile data traffic volumes (Tbytes) (Tbytes) 134.7% 38.2% 160
Slide 31: Reduction in operating cost (Telkom Company only)
Reduction in operating cost (Telkom Company only) R761 million year on year reduction Rm 8.8% 8 678 7,917 14.6% 6.6% 4,162 11.1% 27.5% 3,554 2,497 2,663 1,441 1,281 578 419 Total operating costs Employee expenses SG&A Service fees Operating leases (Excl depreciation) Sept 2015 Sept 2016 Telkom H1 17
Slide 32: Increased capital expenditure in priority areas
Increased capital expenditure in priority areas Sept 2016 Sept 2015 % Fibre 929 343 170.8 Mobile 758 201 277.1 OSS/BSS programme 325 162 100.6 Network rehabilitation/sustainment 192 167 15.0 Service on demand 658 707 (6.9) Core network growth 392 87 350.6 Telkom H1 17 | 15 November 2016 32
Slide 33: Strong cash position – Platform to enable growth
Strong cash position – Platform to enable growth Sept 2016 Sept 2015 % Cash sources Opening cash balance 2 542 3 642 (30.2) Cash flow from operating activities 3 266 2 029 61.0 Significant cash applications Dividend paid (1 447) (1 329) (8.9) BCX acquisition - (2 654) - Cash paid on capital expendit
Slide 34: Guidance
Guidance F2017 H1 F2017 F2018 guidance (A) guidance Net revenue Modest growth +3.3% ✓ Modest growth EBITDA margin 23% - 25% 26.1% ✓ 23% - 25% Capex to revenue 15% - 18% 18.0% ✓ 14% - 17% Net debt to EBITDA ≤1 0.3 ✓ ≤1 Mobile EBITDA breakeven Achieved R214 million ✓ N/A Dividend policy: Annual divide
Slide 35: Conclusion
4 Conclusion
Slide 36: Integration of Telkom Enterprise with BCX
Integration of Telkom Enterprise with BCX PEOPLE RESOURCES PRODUCT OFFERING • Led by Isaac Mophatlane • Data Centres managed by BCX • Offer end to end solutions • New Exco • Group IT services to be • Converged products and managed by BCX services • One sales force team • Central Treasury function •
Slide 37: Focus strategic areas
Focus strategic areas • High speed • Modernise the • Cloud Computing • Expanding Omni- broadband growth - network • Unified Channel offerings LTE & Fibre • Commercialise the Communications and • Establish E-Commerce • Mobile growth network Collaboration market place through disruptive • Grow broadba
Slide 38: In closing
In closing Processes Culture Technology Finance Telkom H1 17 | 15 November 2016 38
Slide 39: Thank you
Thank you Questions? telkomir@telkom.co.za