Telkom Sa Soc Ltd. · JSE:TKG
Telkom Sa Soc — Telkom — H1 FY2008 Earnings Presentation
57 slides from Telkom Sa Soc's earnings presentation, Nov 29, 2007
Slide 1: Group interim results for the six months ended September 30, 2007
Group interim results for the six months ended September 30, 2007 Telkom SA Limited Providing for the Bandwidth Explosion
Slide 2: Cautionary statement on forward looking statements
Cautionary statement on forward looking statements All of the statements included in this presentation, as well as oral statements that may be made by us or by officers, directors or employees acting on behalf of us, that are not statements of historical facts constitute or are based on forward-look
Slide 3: Group Overview
Reuben September Group Overview
Slide 4: Core Strategy - Defend & Grow Revenues
Strategy Core Strategy - Defend & Grow Revenues
Slide 5: Defend Revenues
Defend Revenues Increase annuity revenues Drive to increase subscription revenues Long term contracts Rebalance tariffs To align with cost structures to combat arbitrage Build retention through bundling Offer attractive value propositions
Slide 6: Fixed/Mobile: Grow Revenues
Fixed/ Mobile Grow Revenues Geographic Data Fixed/Mobile Platform: Become an Integrated Service Provider across the Fixed and Mobile value chain Position entity as a competitive convergence solutions provider Geographic Reach Expand into Africa through the Integrated Service Provider Strategy Conver
Slide 7: Protecting our EBITDA margin is vital
Protecting our EBITDA margin is vital Enabling strategies NGN deployment Product innovation through convergence and mobility Competitive pricing models Cost management Stakeholder engagement Customer centricity Employee engagement Acquisitive growth Effective organisational structures
Slide 8: Fixed / Mobile growth
Improved strength as an ICT company International footprint for enterprise customers Own the digital home Accelerated growth Mobile strategy review in progress Fixed / Mobile growth Become an Integrated Service Provider across the fixed and mobile value chain Position entity as a competitive converg
Slide 9: Converged Services and Data growth
Connectivity Managed networks Data centre outsourcing Desktop support Application Services Business process services Telcos strengths Commoditising IT infrastructure Pursuing international IT capabilities Converged Services and Data growth Access Diginet DSL VSAT Transport Circuit- switched ATM Fram
Slide 10: Pan African service provider strategy
Pan African service provider strategy Global footprint for SA multi-nationals Key Criteria For Optimal Geographic Reach Financial criteria Core geographical areas Core business areas Geographic growth Goal is to cover major cities in Africa Expand international connectivity of major cities through h
Slide 11: Enhancing effectiveness
Enhancing effectiveness Management restructuring The new EXCO structure has been designed to: Create specialised focus areas to service customer segments Ensure a coherent Group approach to marketing, pricing and product and services development Enhance effective and efficient resource utilisation I
Slide 12: Aggressive retention and loyalty drive: Financial summary
Aggressive retention and loyalty drive Financial summary 8.3% growth in Group operating revenue to R27.2bn 37.5% Group EBITDA margin 4.8% decrease in Group operating profit to R7.3bn 15.1% decrease in Group headline earnings per share to 742.3 cents per share 38.2% f ixed-line EBITDA margin 33.3% mo
Slide 13: Financial overview
Deon Fredericks Financial overview
Slide 14: Group income statement
Building the foundation for the future Group income statement HEPS Cents EBITDA margin % (16.6) 724.3 868.1 Basis earnings per share (cents) (17.1) 3,793 4,574 Net profit (5.8) (2,678) (2,844) Taxation 122.4 (972) (437) Finance charges (0.1) 10,214 10,225 EBITDA (23.5) Investment income (4.8) 7,313
Slide 15: Group balance sheet
Balance sheet remains strong Group balance sheet 60% net debt to equity 9% return on assets (%) (%) 50.9 17,732 11,751 Net debt 14.9 63,595 55,351 Total equity & liabilities 59.1 24,182 15,203 Current liabilities (19.0) 9,838 12,148 Non-current liabilities 5.6 29,575 28,000 Capital & reserves 14.9 6
Slide 16: Group cash flow
Capex, acquisitive growth and dividend payment reduce cash flow Group cash flow Six months ended (56.0) (1,825) (4,147) Net increase in cash (1,096.7) (1,525) Cash at the end of period 71.3 (7,028) (4,102) Investing activities (145.3) (633) 1,396 Free cash flow (653.2) 4,520 (817) Financing activiti
Slide 17: Group Capital investment
Fixed and mobile investment a priority for growth 6.0% Group Capital investment Expenditure ZAR millions Capex to revenue %
Slide 18: Fixed-line business remains the major contributor to the Group
Fixed-line business remains the major contributor to the Group Operating revenue Operating profit Profit attributable to equity holders Segmental contribution before eliminations Fixed-line Mobile Other
Slide 19: Fixed-line business
Fixed-line business Deon Fredericks
Slide 20: Fixed-line profitability
(13.0%) (19.9%) Fixed-line profitability Six months ended (12.5) 6,153 7,031 EBITDA 38.2 43.9 EBITDA margin (%) 26.6 33.2 Operating profit margin (%) (19.4) 4,286 5,316 Operating profit % Sep 07 Sep 06 ZAR millions EBITDA margin % Operating profit margin %
Slide 21: Fixed-line income statement
Vodacom dividend declared after September 2007 Fixed-line income statement Operating profit margin % EBITDA margin % (46.6) 2,623 4,909 Net profit (1.8) (1,798) (1,831) Taxation 65.3 (702) (426) Finance charges (12.5) 6,153 7,031 EBITDA (54.6) 1,850 Investment income (19.4) 4,286 5,316 Operating pro
Slide 22: Fixed-line operating profit drivers
(R1,030 million) Fixed-line operating profit drivers ZAR million
Slide 23: Fixed-line revenue
Competition and aggressive price reductions leading to revenue pressure 6.7% (9.6%) 16.7% 0.5% (16.0%) 9.8% Fixed-line revenue ZAR million Sep 06 Sep 07
Slide 24: Fixed-line traffic
0.2% (22.3%) (14.9%) 1.0% (17.8%) 15.1% 3.9% Competition and term & volume discount plans affecting volume & revenue 2.2% Fixed-line traffic Traffic revenue Traffic volumes ZAR millions Millions of minutes
Slide 25: Recurring revenue continues to grow
Recurring revenue continues to grow Annuity revenue 9.1 International other Six months ended 14.6 3,340 2,914 Total annuity revenue 7.8 Value added services 21.1 CPE rental 78.5 Calling Plans / packages 7.0 2,349 2,195 Line Rental % Sep 07 Sep 06 Annuity revenue Annuity revenue includes all subscrip
Slide 26: Fixed-line operating expenses
6.6% Focus on customer service and network reliability Fixed-line operating expenses Six months ended 8.9 1,867 1,715 Depreciation, amortisation, impairment and write-offs (9.9) Operating leases 10.9 1,186 1,069 Services rendered 23.7 1,845 1,491 SG&A 8.6 3,362 3,097 Payments to other operators (3.2
Slide 27: Fixed-line Employee expenses
Skills mix drives growth in salary expenses (3.2%) Fixed-line Employee expenses (78.6) Other Six months ended 18.0 (381) (323) Labour capitalised (25.7) 1,022 1,375 Benefits 12.6 2,770 2,460 Salaries and wages % Sep 07 Sep 06 ZAR millions Total (Rm)
Slide 28: Fixed-line Selling, General and Administrative expenses
23.7% Ensuring service reliability and product positioning Fixed-line Selling, General and Administrative expenses Total (Rm) 56.9 Other 43.5 Bad debts 25.5 Marketing 12.0 1,044 Materials & Maintenance % Sep 07 Sep 06 ZAR million Six months ended
Slide 29: Fixed-line capex
Capex to revenue ratio up to 16.4% from 16.2% Fixed-line capex Six months ended 64.3 Other (34.1) Sustainment (93.5) Revenue generation (27.0) Support 1.8 2,647 2,599 Total (96.2) Regulatory (15.6) Efficiencies & improvements (25.3) Network evolution 34.6 1,854 1,377 Baseline expansion % Sep 07 Sep
Slide 30: Mobile business
Mobile business Deon Fredericks
Slide 31: Mobile financial highlights
Investing to maintain strong revenue growth 17.2% 26.1% 4.9% 15.1% Mobile financial highlights ZAR million ZAR million ZAR million ZAR million 100% Vodacom (50% consolidated) 1. Including intangibles
Slide 32: Leading the South African mobile market
New disconnection rules affect pre-paid churn 15.3% 10.1% (4.0%) 6.7% Leading the South African mobile market Thousands Thousands ZAR % 1. Blended ARPU
Slide 33: Guidance for 2007/2008
EBITDA margin between 37% and 40% Net debt to equity of 50% to 70% Capex/revenue 18% – 22% Guidance for 2007/2008 Fixed-line Group
Slide 34: Operational Overview
Reuben September Operational Overview
Slide 35: 2011 broadband plan
Up to 4Meg Legacy TDM network Stand alone access, voice and Internet value propositions Limited content Complex installation Up to 10Meg 3 rd Generation IP network Integrated communication and entertainment Interactive IPTV and HDTV “Better than” content strategy Simplicity of use – plug and play br
Slide 36: ADSL Year-On-Year Growth
Significant growth driven by Self Install Option and growth in capacity ADSL Year-On-Year Growth Increased ADSL footprint to 2,501 DSLAMs 4.9% growth in 2MB services to 163,430 over six months 76.2% growth in ADSL from Sept 2006 to Sept 2007
Slide 37: Self install update
On target to reach 420,000 by March 2008 Self install update Self Install Option (SIO) is a key enabler of accelerated ADSL growth The YTD performance of SIO is 59% of all installations and growth
Slide 38: Multimedia portal – driver for ADSL growth
Multimedia portal – driver for ADSL growth Do Broadband Launched May 2007 Bundled DSL access and Telkom Internet 3 bundled options Entry level option R199 per month Host of value added services through Do Broadband Portal
Slide 39: Balanced approach of wire and wireless technology
Balanced approach of wire and wireless technology WiMAX – complementing ADSL sweet spots Additional 71 base stations targeted 27 sites fully operational Internet WiMAX products launched Voice service planned to be launched by March 2008
Slide 40: Data Services
Data growth remains strong Data Services (25.5) Multimedia services Six months ended 4.7 2,191 2,093 Data connectivity 27.0 Internet access and related services 12.0 Leased lines facilities 22.7 Managed data networks (Satellite & VPN Services) % Sep 07 Sep 06 ZAR millions Telkom currently has 227,06
Slide 41: Bundled packages subscriber numbers
Attractive value propositions increase uptake Bundled packages 78,780 - Do Broadband 92.6 5,144 2,671 Closer 1 162.7 166,144 63,223 Closer 2 57.2 179,599 114,274 Closer 3 39,674 - Closer 4 6,028 - Closer 5 Six months ended 452.3 11,250 2,037 SupremeCall 120.1 396,589 180,168 Telkom Closer % Sep 07 S
Slide 42: Capabilities of NGN
Capabilities of NGN Improved customer service experience Self-service Flexible billing and bandwidth usage Diversified offerings bring convenience, flexibility and cost saving benefits Improved service delivery Automation of service delivery Self-service tools will reduce operational load Converged
Slide 43: Key NGN achievements
Increasing bandwidth to service explosive demand Key NGN achievements National and Local Transport Network Network increased by 167 nodes Bandwidth potential to increase by 1.2 Tbit/s - 17% 93 being installed, 128 being planned for next 6 months Bandwidth potential to increase by 2.2 Tbit/s – 47% fo
Slide 44: National Layer – core bandwidth
Matching core capacity to meet explosive demand 1000% increase in bandwidth potential over the next 2 years Port Elizabeth Capetown Polokwane National Layer – core bandwidth
Slide 45: Metro Layer – core bandwidth
Aligning capacity to Metro demand 1600% increase in bandwidth potential over the next 2 years Metro Layer – core bandwidth
Slide 46: Product innovation provides revenue opportunities
Product innovation provides revenue opportunities New NGN products Easy VPN available to wholesale customers over ADSL network VPN Lite recently launched (retail VPN for SMMEs using Easy VPN with advanced self help and online charging solution) Telkom Mobility enhanced to allow access via 3G. Allows
Slide 47: Customer centricity
Designing processes from a customer perspective Customer centricity Customer Centricity at the core of the Corporate Strategy Established a Customer Centricity Office in May 2006 Overseeing this strategic drive at enterprise level Formulation of a Customer Centricity Roadmap 67 initiatives aimed at
Slide 48: On target to meet our roadmap
On target to meet our roadmap Key elements of journey towards Customer Centricity Competitive Advantage Time Call Center Quick wins 1-to-1 Marketing Call Center Master Plan design Customer Profitability Customer Insight Customer Segmentation Value and Needs Based Customer Data Management Churn Analy
Slide 49: Customer segmentation
“Treat different customers differently” Customer segmentation Segment customers according to value and needs Understand customer equity and break-even points Differentiated value and service to high-value customers Anticipate customer needs Easily identify value enhancers and cross selling opportuni
Slide 50: Telkom Media
Complementing Telkom’s converged services offering Telkom Media Granted a commercial satellite and cable subscription broadcast license in September 2007 License to be issued after negotiations with ICASA Targeting the under-served LSM 5 – 8 market: over 40% of SA households Offering element of choi
Slide 51: Telkom Media (cont)
Telkom Media (cont) Funding required R7.5 billion Telkom Board approved funding of R800 million (Capex & Opex) Business plan and go-to-market strategy being aligned with current market dynamics License fees and operational expenditure to September 30, 2007 - R55 million Commencement of service expec
Slide 52: Multi-Links: West African switched hubbing strategy
Centre for West African switched hubbing strategy Multi-Links A private telecommunications operator in Nigeria with a Unified Access License allowing fixed, mobile, fixed-wireless, international and data services Acquired in April 2007 for R1,985 million Contribution for 5 months to September 30, 20
Slide 53: Multi-Links (cont.)
Multi-Links (cont.) Aggressive roll-out of NGN infrastructure Allows maximum efficiency and minimal network opex cost Expected capex at March 2008 – R1.6 billion (USD 228 million) Suite of IP Enterprise Solutions allows differentiation in Nigerian market Plans to launch carrier quality wholesale voi
Slide 54: Africa Online: East African switched hubbing strategy
Centre for East African switched hubbing strategy Africa Online An Internet Services Provider with operations in Kenya, Tanzania, Cote d’Ivoire, Ghana, Uganda, Namibia, Swaziland, Zambia and Zimbabwe Acquired for R150m in February 2007 Contributed to September 30, 2007 Revenue - R46 million Opex - R
Slide 55: Africa Online (cont.)
Africa Online (cont.) Focusing on aggressive wireless broadband infrastructure roll-out Expected capex at March 2008 – R80 million (USD 11.6 million) Expected capex at March 2010 – R137 million (USD 20 million) Intends to grow presence from 9 – 15 countries within 3 years Capitalising on synergies w
Slide 56: Providing for the bandwidth explosion: Conclusion
Providing for the bandwidth explosion Conclusion
Slide 57: Investor Relations
Investor Relations Nicola White Tel: +27 12 311 5720 Fax: +27 12 311 5721 E-Mail: whitenh@telkom.co.za