Telkom Sa Soc Ltd. · JSE:TKG
Telkom Sa Soc — Telkom — H1 FY2009 Earnings Presentation
51 slides from Telkom Sa Soc's earnings presentation, Nov 26, 2008
Slide 1: Group interim results for the six months ended September 30, 2008
Telkom SA Limited Group interim results for the six months ended September 30, 2008 17 November 2008 Freedom to Compete
Slide 2: Cautionary statement on forward looking statements
2 Cautionary statement on forward looking statements All of the statements contained herein, as well as oral statements that may be made by Telkom or Vodacom, or by officers, directors or employees acting on their behalf related to such subject matter, that are not statements of historical facts con
Slide 3: Overview
3 Overview Reuben September CEO
Slide 4: Presentation highlights
Presentation highlights Group revenue growth of 9.8%, HEPS up by 0.4% On track to deliver our defend and grow strategy - notable successes in the last six months Improvements in key customer service metrics Important transactions completed Strong growth in Multi-Links and key plans for performance i
Slide 5: Group financial highlights - solid performance
27,227 Sept '07 29,884 Sept '08 Sept '08 Sept '07 9,982 Sept '07 10,265 Sept '08 17,732 Sept '08 19,622 Sept '07 683 Group financial highlights - solid performance 9.8% - - 2.8% 0.4% 742.3 745.2 10.7% Operating revenue EBITDA Headline EPS Net debt
Slide 6: Our strategy is to defend and grow our core business
Maintain market position build customer retention and loyalty migrate to annuity based revenues Provide full fixed-mobile convergence Leverage existing competitive strengths corporate customer relationships high-quality, sophisticated, ubiquitous network Pursue data opportunities in all markets cons
Slide 7: On track to implement strategy with notable successes
Annuity revenue up 7.6% to R3.6 billion Calling Plan subscribers up 28.1% to 507,985 Improvement in customer service, e.g. faster delivery of ADSL Free to compete - Vodacom disposal Successfully launched WCDMA data products Successfully trialing WCDMA voice mobile ADSL subscribers up 46.7% to 491,77
Slide 8: Defending base via bundled offers and customer retention
8 Defending base via continued focus on bundled offers Improving customer retention and loyalty Strategy to convert traffic to annuity revenue through bundles continues to be successful Closer packages increased 28.1%, Supreme Call packages increased 23.7% Annuity revenues increased 7.6% to R3,595m,
Slide 9: Build strong foundation to improve customer centricity
Build strong foundation to improve customer centricity Competitive advantage Transformation enablers: PMO, change management (cultural adaptation & internal/external communications) Time Apr 09 - Mar10 Enhance 1-to-1 treatment capabilities Sep 07 - Mar 08 Build foundation Oct 06 -Aug 07 Build moment
Slide 10: Progress on customer centricity drive
10 Progress on customer centricity drive Established robust customer data and analytics environment Refined customer segmentation programme based on value and needs Churn management model to be completed during March 2009 Customer Portfolio Management based on value and needs to be completed by Marc
Slide 11: Significant improvement in customer service
11 Achieved significant improvement in customer service Average time to install has improved to 17 days from 20 days achieved at March 31, 2008 Contact centre network streamlined to make Telkom more accessible for customers Telkom Internet Technical Support achieved 8% improvement in customer satisf
Slide 12: Continued focus on cost management
Continued focus on cost management Cost management remains a key driver for Telkom's performance Programmes designed to deliver sustainable results Capability management programme designed according to international best practice for improved profitability and improved customer service Capability ma
Slide 13: Vodacom transaction
Vodacom transaction Three inter-conditional components: 15% stake to be sold to Vodafone Remaining 35% to be listed on the JSE and distributed to Telkom shareholders in South Africa and other eligible jurisdictions by way of an unbundling 50% of post tax (CGT) proceeds declared as special dividend (
Slide 14: Aggressively repositioning Telkom to compete
14 Expand infrastructure capabilities including NGN and domestic data centre Selectively build mobile network Pursue growth through acquisitions Vodacom transaction - 50% of proceeds retained Proceeds Aggressively repositioning Telkom to compete Intensive ongoing process evaluating return profiles t
Slide 15: Do 3G successfully launched
Do 3G successfully launched Telkom's Do 3G services provide high speed Internet access The latest HSDPA and HSUPA wireless network supports devices capable of 7.2Mbps high-speed downlink packet access and 2.4Mbps high-speed uplink packet access Competitively priced Wireless Internet bundles ranging
Slide 16: Strong growth in broadband
Strong growth in broadband ADSL subscribers increased by 46.7% to 491,774 Targeting 592,000 ADSL subscribers for FY2009 Do Broadband subscribers increased 96.0% to 154,095 Wholesale Internet leased lines increased 11.9% to 23,511 60% of all ADSL installations done through self-install option ATTI im
Slide 17: Data moves to higher value services
Data moves to higher value services Data expected to continue to grow strongly into the future Data revenues increased by 12.2% to R4,459 million Continuing focus on increasing speed and reliability of the network Demand for innovative data solutions driving the NGN expansion 63% VPN services 42% Ma
Slide 18: Submarine cable investments as foundation for ICT strategy in Africa
18 Investments in submarine cables creates solid foundation for ICT strategy in Africa Participation in new cable systems in order to drive international connectivity across Africa Servicing the demand of corporates and multinationals for international connectivity and data solutions New Cable Syste
Slide 19: Multi-Links current performance
Multi-Links current performance Strong subscriber growth expected to improve financial performance Strong revenue growth Revenue increased 162% to R813 million Network Capex expansion Net loss for the period of R247 million - deferred tax credit Capex increased to R1,730 million from R128 million at
Slide 20: Multi-Links Mobile shows strong growth
Multi-Links Mobile shows strong growth Subscriber growth impressive Strong subscriber growth Subscriber base increased 579% to 1,780,984 to September 30, 2008 At October 31, 2008 subscribers increased to 2,108,649 Short-term ARPU hit by strong growth ARPU declines from US$32 at March 31, 2008 to US$
Slide 21: Significant opportunity for Multi-Links data growth
Significant opportunity for Multi-Links data growth Multi-Links well positioned for data growth Nigerian Internet penetration of 5% predicted to grow swiftly - initially through mobility Satellite capacity near full capacity - creating bottlenecks for other operators Multi-Links can leverage increas
Slide 22: Multi-Links - Positioning for mobile and data growth
22 Multi-Links - Positioning for mobile and data growth Multi-Links - Positioning for mobile and data growth Capex programme continues: Base stations increased 119% to 589 from March 31, 2008 Fibre deployment increased 52% to 3,800 km from March 31, 2008 Capacity increased - Packet exchange in Abuja
Slide 23: Multi-Links' key plans for performance improvements
Multi-Links' key plans for performance improvements Capitalise on fibre swapping to extend coverage Improve points of sale and customer contact centres Enhance distribution channels Improve operating and business support systems Aggressively drive wholesale business Improved channels to market to be
Slide 24: M-Web Africa next cornerstone in Pan-African ISP strategy
M-Web Africa next cornerstone in our Pan-African ISP strategy Moving decisively into the African ICT market Transaction detail M-Web Africa and 75% of M-Web Namibia acquired for US$63 million based on a business plan EBITDA multiple of 7.0x at FY2010 Transaction expected to close in first half of ca
Slide 25: Telkom Media
25 Telkom Media March 31, 2008 - announced commitment to reduce shareholding Negotiations with potential investor progressing well Announcement of details of transaction can be expected shortly The Telkom shareholder loan of R430 million has been impaired fully as at September 30, 2008 R217 million
Slide 26: Telkom well positioned to weather the financial storm
Telkom well positioned to weather the financial storm Relatively limited exposure to international financial market However, some risks remain: Potential bad debt Approximately 40% capex is foreign currency denominated Rand has depreciated more than 30% since August 2008 Management paying close atte
Slide 27: Financial Overview
27 Financial Overview Deon Fredericks Acting CFO
Slide 28: Group income statement
Sep 07 Mar 08 Sep 08 East 38.2 36.3 31.7 28 Sep 07 Mar 08 Sep 08 East 742.3 1634.8 745.2 Group income statement Six months ended Six months ended Six months ended ZAR million Sep 07 Sep 08 % Operating revenue 27,227 29,884 9.8 Other income 204 246 20.6 Operating expenses (20,067) (23,454) 16.9 Opera
Slide 29: Group balance sheet
29 Group balance sheet Six months ended Six months ended Six months ended ZAR million Sep 07 Sep 08 % Non-current assets 52,231 60,225 15.3 Current assets 11,310 12,449 10.1 Discontinued operations 54 53 (1.9) Total assets 63,595 72,727 14.4 Capital & reserves 29,575 34,213 15.7 Non-current liabilit
Slide 30: Group cash flow
30 Group cash flow Six months ended Six months ended ZAR millions Sep 07 Sep 08 % Cash generated from operations 6,395 6,361 (0.5) Dividend paid (5,712) (3,328) (41.7) Cash generated from operating activities 683 3,033 344.1 Investing activities (7,028) (5,262) (25.1) Financing activities 4,520 1,25
Slide 31: Segmental contribution after inter-segmental eliminations
31 Segmental contribution after inter-segmental eliminations Operating revenue Operating profit EBITDA Fixed-line Mobile Other 2003 58 42 0 Fixed-line Mobile 2003 54 41 5 Fixed-line Mobile Other 2003 62 36 2 Fixed-line remains the major contributor Mobile Other Fixed-Line
Slide 32: Fixed-line income statement
32 Fixed-line income statement Six months ended Six months ended Six months ended ZAR million Sep 07 Sep 08 % Operating revenue 16,108 16,565 2.8 Other income 189 207 9.5 Operating expenses (12,011) (13,515) 12.5) Operating profit 4,286 3,257 (24.0) Investment income 98 1,661 1,594.9 EBITDA 6,154 5,
Slide 33: Fixed-line revenue
33 Fixed-line revenue ZAR million Total Subscription & connection Traffic Interconnect Data 2007 16108 3118 8077 833 3975 2008 16565 3233 7833 956 4459 14.8% (3.0)% 3.7% 2.8% 12.2% Double digit data revenue growth Sep 07 Sep 08
Slide 34: Fixed-line traffic
34 Fixed-line traffic Local Long distance Fixed-to-mobile International outgoing Calling plans 2007 2125 1219 3794 498 441 2008 1881 1048 3803 481 620 Local Long distance Fixed-to-mobile International outgoing Calling Plans 2007 6198 2016 2093 326 1445 2008 4688 1870 2111 336 1704 ZAR millions Milli
Slide 35: Fixed-line annuity revenue
35 Fixed-line annuity revenue Six months ended Six months ended ZAR millions Sep 07 Sep 08 % Line rental 2,349 2,411 2.6 Calling plans/packages 441 620 40.6 CPE rental 373 383 2.7 Value added services 165 168 1.8 International other 12 13 8.3 Total 3,340 3,595 7.6 Note: Annuity revenue includes all
Slide 36: Fixed-line revenue (continued)
36 Fixed-line revenue (continued) Six months ended Six months ended ZAR millions Sep 07 Sep 08 % Mobile 407 445 9.3 Fixed domestic 5 36 620.0 International 421 475 12.8 Interconnection revenue 833 956 14.8 Six months ended Six months ended ZAR millions Sep 07 Sep 08 % Leased lines 3,076 3,597 16.9 M
Slide 37: Fixed-line operating expenses
37 Fixed-line operating expenses Sep 07 Sep 08 East 12011 13515 12.5% Six months ended Six months ended ZAR millions Sep 07 Sep 08 % Employee expenses 3,414 4,079 19.5 Payments to other operators 3,362 3,663 9.0 SG&A 1,844 2,237 21.3 Services rendered 1,186 1,213 2.3 Operating leases 337 328 (2.7) D
Slide 38: Fixed-line employee expenses
38 38 Fixed-line employee expenses Six months ended Six months ended ZAR millions Sep 07 Sep 08 % Salaries and Wages 2,770 2,867 3.5 Benefits 1,025 1,560 52.2 Labour capitalised (381) (348) (8.7) Sep 07 Sep 08 East 3414 4079 Total (Rm) 19.5%
Slide 39: Fixed-line capex
39 39 Fixed-line capex Six months ended Six months ended ZAR millions Sep 07 Sep 08 % Baseline expansion 2,064 2,128 3.1 Sustainment 114 39 (65.8) Efficiencies & improvements 352 401 13.9 Support 89 176 97.8 Regulatory & other 28 - - Total 2,647 2,744 3.7 Telkom continues to build for the future
Slide 40: Fixed-line: impact of inflation
40 Fixed-line: impact of inflation Six months ended ZAR millions Sep 08 Increased revenue (international outgoing - switched hubbing) 64 Increased operating expenses Employee expenses (174) Payments to other operators (75) Materials and maintenance (18) Effect on operating profit (203) Note: Only th
Slide 41: Company balance sheet
41 41 Company balance sheet Six months ended Six months ended ZAR million Sep 07 Sep 08 % Non-current assets 40,327 45,063 11.7 Current assets 6,364 8,090 27.1 Total assets 46,691 53,153 13.8 Capital & reserves 22,264 26,920 20.9 Non-current liabilities 7,108 13,105 84.4 Current liabilities 17,319 1
Slide 42: Company cash flow
42 42 Company cash flow Six months ended Six months ended ZAR millions Sep 07 Sep 08 % Cash generated from operations before dividend 6,530 5,919 (9.4) Dividend paid (5,856) (3,433) (41.4) Cash generated from operating activities 674 2,486 268.8 Investing activities (5,229) (3,693) (29.4) Financing
Slide 43: Fixed-line and Other Segment income statement
43 Sep 07 Mar 08 Sep 08 East 1.1 0.9 1.5 43 Fixed-line and Other Segment income statement Six months ended Six months ended ZAR million Sep 07 Sep 08 % Operating revenue 17,010 18,071 6.2 Other income 215 242 12.6 Operating expenses (12,707) (15,036) 18.3 Operating profit 4,518 3,277 (27.5) Investme
Slide 44: Mobile financial highlights
18 Mobile financial highlights Sep 07 Sep 08 East 22814.9 26016.2 Sep 07 Sep 08 East 6879.4 7951.9 Sep 07 Sep 08 East 5714.3 6430 Operating revenue Operating profit Capital expenditure1 Cash generated from operations ZAR million ZAR million ZAR million ZAR million 14.0% 15.6% 12.5% 100% Vodacom (50%
Slide 45: Leading the South African mobile market
19 Leading the South African mobile market Sep 07 Sep 08 East 23297 25245 Sep 07 Sep 08 East 45.9 42.3 Sep 07 Sep 08 East 5845 5693 Sep 07 Sep 08 East 122 132 Customers ARPU1 Churn Gross connections Thousands Thousands ZAR % 8.4% 1. Blended ARPU Strong mobile customer growth (2.6%) 8.2% (7.8%)
Slide 46: Other segment
46 46 Other segment TDS Multi-Links Africa Online Swiftnet Sep 07 498 310 46 48 Sep 08 581 813 63 49 Operating revenue ZAR in millions Operating Expenditure ZAR in millions TDS Multi-Links Africa Online Swiftnet Sep 07 282 319 53 42 Sep 08 321 1081 71 48 17% 162% 2% 37% Sep 07 Sep 08 14% 239% 34% 14
Slide 47: Other segment (continued)
21 Other segment (continued) Sep 07 Sep 07 East 125 1818 Sep 07 Sep 08 East 232 20 Operating profit Capital expenditure1 ZAR million ZAR million 1,354% 1. Including intangible assets African operations bring exciting opportunities (91.4%) Customer numbers ZAR in millions Sep 07 Sep 08 East 14399 177
Slide 48: Funding profile as at September 30, 2008
48 Funding profile as at September 30, 2008 (including maturities) Maturing in 2009 calendar year CP Bills R4,015 million Call Borrowings R1,820 million Maturing 2010 calendar year PP02 R430 million PP03 R1,350 million Term Loans R3,000 million Maturing after 2010 TL12 (maturing in 2012) R1,060 mill
Slide 49: Effects of the Vodacom transaction
49 Effects of the Vodacom transaction Proceeds invested and used to manage capital efficiently After Before Comments Revenues (ZARbn) 34.5 56.3 EBITDA (ZARbn) 12.4 20.6 Total gross debt (ZARbn) 15.2 18.4 Total cash (ZARbn) 10.9 1.7 Net debt (ZARbn) 4.4 16.6 Removal of 50% of Vodacom consolidated rev
Slide 50: Effect of the Vodacom transaction (continued)
50 Effect of the Vodacom transaction (continued) Total net debt R16.6bn EBITDA R20.6bn Net debt/EBITDA 0.8x Before Total net debt1 R4.4bn EBITDA R12.4bn Net debt1/EBITDA 0.4x After Capital structure Pro forma, with 50% of proceeds, implies a ND/EBITDA of 0.4x Three year targeted ND/EBITDA of 1.3x to
Slide 51: Guidance for 2008/09
51 Guidance for 2008/09 Fixed-line and other Constant revenue growth: CAGR between 5% and 10% Capex to range between 23% and 27% of revenue over the next 2 years and between 18% and 22% of revenue in the 2011 financial year EBITDA margin to range between 32% and 36% - expect to see improvement withi