Slide 1: Group Interim Results for the 6 months ended 30 September 2015
Group Interim Results for the 6 months ended 30 September 2015 16 November 2015
Slide 2: Agenda
Agenda Introduction Business performance Financial highlights Conclusion
Slide 3: Introduction
Introduction 4 Sipho Maseko
Slide 4: Operating environment
Operating environment Industry undergoing rapid change • Consumption of data continues to grow - New innovative uses – smartphones and devices, IPtv, cars, smart home - Changing work force patterns and needs • Ecosystem/OTT players - disruptive role - Influence telco economics but not own infrastruc
Slide 5: Customer experience remains critical to our success
Customer experience remains critical to our success Continued focus on customer advocacy • Customer First programme central to the strategy • Stabilise employee culture with a focus on delivery and customer experience • Improve the broadband network and experience – Simplify installation process – E
Slide 6: Operational overview
Operational overview We have continued with the transformation of our business • Implementing new operating model – Openserve launched • Completed BCX transaction • Staff efficiency – resetting labour relationship • Completed move to new campus • Outsourcing – call centres, warehouses • Procurement:
Slide 7: Financial highlights
Financial highlights Stabilised revenue decline HEPS up 13.9% Operating costs, excl. depreciation down To 280.6 cents EBITDA improved 2.3% 15.1% Net revenue up to R5 billion 1.2% to R13.5 billion Fixed data revenue, Margin of excluding leased line Fixed-line voice usage revenue revenue increased 30.
Slide 8: We are fulfilling our ambitions…
We are fulfilling our ambitions… …addressing the key issues affecting performance Customer service Improving NPS, a lot more to be done Efficiencies Costs, VERPS/VSPs, outsourcing, procurement Managing regulatory Proactive in managing regulatory matters issues Relationship with Resetting the relatio
Slide 9: Business Performance
Business Performance Sipho Maseko
Slide 10: Consumer
Consumer Continued strong performance by mobile; recovery from fixed line • Mobile Consumer: Gross operating revenue increased by 44% – Service revenue increased by 36.4% – Data revenue increased 59.7% • Fixed-line Consumer: Net operating revenue increased by 1.5% – Data revenue increased 10% • Mobi
Slide 11: Enterprise
Enterprise Good progress on stabilising the business • Metro Ethernet revenue grew 52% – Despite price reductions on bandwidth and access • Voice decline – 2.9% – Compounded by competition – New technology voice • Telkom Business Mobile growth – 51.9% customer growth – 42.5% revenue growth • Tractio
Slide 12: Openserve
Openserve Accelerated fibre roll out • ADSL subscribers increased 4.2% to 1 012 416 1 105 382 ~38 000 homes FTTH homes passed passed • Revenue shift to other data connectivity products – Leased line revenue down 25.8% 1 030 441 – Megalines revenue up 78% Ports activated via MSAN • Launched 1Mbs DSL
Slide 13: BCX integration going well
BCX integration going well Leveraging joint and complementary capabilities Fully diversified IT services provider + Full-service telecommunications provider LAN capabilities WAN capabilities Enterprise and mid-tier client base Specialist ICT technical skills Significant data centre footprint Applica
Slide 14: Financial Overview
Financial Overview Deon Fredericks Chief financial officer
Slide 15: Developments in H1 2016 affecting the financial results
Developments in H1 2016 affecting the financial results • Prior year adjustment - Reassessment of the Telkom Retirement Fund (TRF) pensioner liability • Accounting treatment of post retirement pensioner pool: R87 million • BCX incorporated – 1 month • Trudon – continuing operation • VERP/VSP impact
Slide 16: Reassessment of the TRF pension liability
Reassessment of the TRF pension liability • Reassessment of the accounting treatment of the TRF • Adjustment to prior year opening retained earnings and a restatement to the comparative in statement of profit and loss • Non-current employee related provision raised (R1.6bn) – No cash outflow • Accou
Slide 17: H1 2016: A changed and challenging landscape
H1 2016 : “A changed and challenging landscape”… Trading conditions more challenging Exacerbated by operational than expected challenges • Deterioration in economic growth • Voice usage continues to deteriorate • Weakening exchange rate • Challenges and delays impacting transformation initiatives •
Slide 18: …continued commitment to our transformation journey
…continued commitment to our transformation journey Short term cost - long term sustainability Revenue stabilisation and growth Strengthened balance sheet • Successfully concluded BCX acquisition • Sale of non-core properties • Migrated customers to Next generation • Exited head office complex and o
Slide 19: Normalised earnings
Normalised earnings Sept 2015 Sept 2014 % Profit for the period 606 1 078 (43.8) VERP/VSP cost 1 523 325 368.6 Tax on VERP/VSP cost (446) (91) 390.1 Normalised profit for the period 1 683 1 312 28.3 Normalised headline earnings 280.6 246.4 13.9 per share 19
Slide 20: Normalised H1 FY2016 results
Normalised H1 FY2016 results Sept 2015 Sept 2014 % Operating revenue 16 782 15 911 5.5 Net revenue 13 457 13 299 1.2 Operating expenses 8 981 9 192 2.3 EBITDA 5 040 4 379 15.1 Depreciation and impairments (2 615) (2 489) (5.1) Capital investments 2 335 1 939 20.4 Normalised free cash flow 1 445 1 78
Slide 21: Quality of earnings
Quality of earnings Sept 2015 Sept 2014 % Profit for the period 606 1 078 (43.8) VERP/VSP 1 523 325 368.6 Tax on VERP/VSP expenses (446) (91) 390.1 Profit on sale of PPE (282) (53) (432.1) Loss/(Profit) on Cell Captive 60 (132) (145.5) Quality of earnings for the period 1 461 1 127 29.6 21
Slide 22: EBITDA
EBITDA Normalised EBITDA movement R661 m Rm 15.1% 73 8% 22% 158 293 30% (115) 351 (99) 4 379 5 040 H1 2015 Operating SG&A Employee Other Net Service H1 2016 EBITDA leases expenses income revenue fees EBITDA 22
Slide 23: Group revenue
Group revenue Contribution to group revenue (%) Revenue at risk declined 8% Contributes 22% (27%) 22% of group revenue 5% 30% Sept 2015 27% 31% Sept 2014 25% 3% 3% 25% 12% 9% Voice usage and interconnection Subscriptions Mobile CPE Data Other 23
Slide 24: Net revenue movement
Net revenue movement Rm R158 m 1.2% 48 58 139 (338) 170 (91) 243 (57) (14) 30% 13 299 13 457 H1 2015 Voice Cost of Direct Data Mobile Payments BCX Other CPE H1 2016 Net and sales cost to other Net revenue inter- operators revenue connection 24
Slide 25: Managing the decline in voice usage revenue
Managing the decline in voice usage revenue Rm 3.4% 8,575 8,284 Sept 2014 Sept 2015 7.5% 14.1% 4,207 3,915 3,584 3,079 14.9% 17.9% 348 400 728 598 Total voice and Fixed voice usage Fixed voice subscriptions Mobile voice and Interconnection interconnection subscriptions 25
Slide 26: Subscribers and data volumes
Data volumes increased ADSL Subscribers 4.2% 1,012,416 971,319 900,079 Sept 2013* Sept 2014* Sept 2015* Managed data network sites Traffic volumes in TBytes (revenue in Rmillion) 6.1% 33.9% 507 538 444 214,557 160,196 109,960 66,536 Sept 2013 Sept 2014 Sept 2015 Sept 2012 Sept 2013 Sept 2014 Sept 20
Slide 27: Multi year cost focus
Multi year cost focus Rm 2.3% 9,192 8,981 Sept 2014 Sept 2015 7.6% 4,661 4,309 4.1% 2,431 2,530 4.6% 1,596 1,523 22.8% 504 619 Total operating costs Employee expenses SG&A Service fees Operating leases (Excl depreciation) 27 Excluding VSPs/VERPs cost of R1 523 million in the current period and R325
Slide 28: Increased capital expenditure to facilitate growth
Increased capital expenditure to facilitate growth Sept 2015 Sept 2014 % Total capital expenditure 2 335 1 939 20.4 Group capital expenditure 2 135 1 775 20.3 excluding mobile Converting access network 291 241 20.8 in IP (NGN) Maintaining/enhancing existing 1 844 1 534 20.2 telecoms and IT networks
Slide 29: Normalised cash flow from operations
Normalised cash flow from operations Sept 2015 Sept 2014 % Cash flow from operating activities 2 029 3 469 (41.5) Add back: VERP/VSP cost paid 1 464 86 1 602.3 Adjusted cash generated 3 493 3 555 (1.7) from operations Cash paid on capital expenditure (2 048) (1 770) 15.7 Normalised free cash flow 1
Slide 30: Performance against guidance
Performance against guidance FY 2016 FY 2015 Sept 2015 Sept 2014 guidance guidance Stabilise to Net revenue Stabilise +1,2% +1.6% grow EBITDA margin 26% - 27% 21.0%* 26% - 27% 25.5%*^ Capex to revenue 15% - 18% 13.9% 14% - 17% 11.4% Net debt to EBITDA ≤1 0.4 ≤1 0.1 During the Mobile EBITDA breakeven
Slide 31: H2 2016: Extracting value amid a challenging landscape
H2 2016: Extracting value amid a challenging landscape Challenging operating environment and weak economic conditions expected to continue • Lower growth • Unemployment rate • Exchange rate • Interest rate increase • Sovereign credit rating, key variable Our strong balance sheet , cash generating ab
Slide 32: Updated guidance
Updated guidance BCX and Trudon included FY 2016 Updated Status guidance guidance Net revenue Stabilise Stabilise No change EBITDA margin 26% - 27% 24% - 26% Changed (*) Capex to revenue 15% - 18% 15% - 18% No change Net debt to EBITDA ≤1 ≤1 No change During the Mobile EBITDA breakeven During the ye
Slide 33: Conclusion
Conclusion Sipho Maseko Telkom
Slide 34: Telkom's transformation
Telkom’s transformation Telkom’s turnaround has three phases: current focus is on implementing the new operating model Turnaround Transform Grow New Improve Stabilise the Sustainable operating core Capability business growth phase model business Efficiencies Openserve: FTTH BCX, Trudon, Swiftnet Peo
Slide 35: Thank you
Thank you Questions? telkomir@telkom.co.za