Slide 1: Annual Results Presentation 2020
2020 Telkom SA SOC Ltd Annual Results Presentation for the year ended 31 March 2020
Slide 2: Tough trading environment
Annual Results Presentation 2020 2 Tough trading environment Macro-economic Competitive Regulatory environment environment environment • Technical recession • Fixed voice revenue under • Data Services Market Inquiry • Customers under pressure pressure • Mobile Broadband Inquiry • Exchange rate volat
Slide 3: COVID-19 response
Annual Results Presentation 2020 3 COVID-19 response Network & Employees Infrastructure Contribution Customers to SA Inc
Slide 4: Business highlights
Annual Results Presentation 2020 4 Business highlights 2
Slide 5: Solid operational performance
Annual Results Presentation 2020 5 Solid operational performance Mobile Mobile data Cloud services customers traffic in data centres 23.9% to 12m 69.9% 10% Fixed line broadband FTTH connectivity M&T tenancy traffic rate ratio 11.4% 48.2% 1.32x
Slide 6: Key strategic themes underlying performance
Annual Results Presentation 2020 6 Key strategic themes underlying performance Infrastructure Broadband investment leadership Evolution of Sustainable fixed business mobile business
Slide 7: Infrastructure investment
Annual Results Presentation 2020 7 Infrastructure investment 3
Slide 8: Data-led network
Annual Results Presentation 2020 8 Data-led network Mobile sites integrated Site Backhaul Mobile Core Expansion & New Elements MW Ratio Expansion Fibre Ratio New 82% 77% 65% 5 862 35% 5 116 3 974 18% 23% FY2018 FY2019 FY2020 FY2018 FY2019 FY2020 FY2018 FY2019 FY2020 Site Type 4.5G Integrated Sites M
Slide 9: Spectrum utilisation
Annual Results Presentation 2020 9 Spectrum utilisation Effective Spectrum Spectrum utilisation Existing Temporary Effective Ubiquitous coverage 700M/ 800M 10M 10M L700/800 MBB 2*10M 700Mhz-FDD 2*10M 800Mhz-FDD 3500Mhz 28Mhz 12Mhz 40Mhz Primary capacity 1800M 2M 10M 2600Mhz - 40Mhz 40Mhz >80% Connec
Slide 10: M&T portfolio
Annual Results Presentation 2020 10 M&T portfolio Total M&T of 6500 Tower height (meters) (%) Growth vs. mature towers (%) 5%5% 35-55 Mature 13% 20-35 31% Growth 49% <20 55-75 69% 28% >75 Overall Tenancy Ratio1 Loading Ratio2 Tower split by population density (%) 1.32x 1.48x >500p/km22 33% <500p/km2
Slide 11: Data Centre Infrastructure
Annual Results Presentation 2020 11 Data Centre Infrastructure Data Automated, Analytics Hybrid centres Modern and Driven Cloud Scalable Operations > 10 Geographically Dispersed Multiple Secure Digital > 12 500 m2 + 3 Tier IV DCs Data Centre Platforms Pairs > 99.99% Uptime > Software defined archite
Slide 12: Resilient network
Annual Results Presentation 2020 12 Resilient network Customer Products Access network to Local connectivity National connectivity Systems and & Services customers and clients between smaller towns between major centres Applications - FTTx - xDSL - Voice - FLLA - LTE & LTE-A Backhaul Aggregation Cor
Slide 13: Broadband leadership
Broadband leadership 4
Slide 14: High-speed broadband – wireless
Annual Results Presentation 2020 14 High-speed broadband – wireless Mobile broadband traffic Mobile broadband subscribers Petabytes ‘000 Smartphone users Data only 8 163 6 377 28.0% 69.9% 6 780 3 627 615 5 281 362 2 753 192 1 383 1 096 874 FY2018 FY2019 FY2020 FY2018 FY2019 FY2020
Slide 15: High speed broadband – fixed
Annual Results Presentation 2020 15 High speed broadband – fixed Fixed line broadband consumption1 Fixed line broadband connections2 Petabytes ‘000 External Internal 225 216 11.4% 19.2% 223 1 113 978 896 999 754 724 680 828 501 FY2018 FY2019 FY2020 FY2018 FY2019 FY2020 1Access links 2Inclusive of fi
Slide 16: Fibre ecosystem
Annual Results Presentation 2020 16 Fibre ecosystem Fibre deployed Fibre to the home 38% 48% 60 Connectivity rate 31% Homes passed National 50 fibre 164k 40 5.8% 455 553 430 659 deployed 30 356 684 20 10 - FY2018 FY2019 FY2020 Fibre to the business Fibre to the base station Services connected 25.9%
Slide 17: Evolution of fixed voice business
Annual Results Presentation 2020 17 Evolution of fixed voice business 5
Slide 18: Evolution of technologies
Annual Results Presentation 2020 18 Evolution of technologies Data solutions evolution Broadband connection evolution Legacy technology Copper access1 Services Connections 20.1% 31.0% 115 900 869 070 108 358 730 676 503 927 86 617 FY2018 FY2019 FY2020 FY2018 FY2019 FY2020 Next generation ethernet te
Slide 19: Evolution of revenue mix
Annual Results Presentation 2020 19 Evolution of revenue mix FY2013 FY2020 1% 3% 7% 8% Fixed voice Fixed voice 20% Fixed data 16% Fixed data 32% 56% Mobile 22% Mobile IT 35% IT Other Other
Slide 20: Evolution of skills – No retrenchments in FY2020
Annual Results Presentation 2020 20 Evolution of skills – No retrenchments in FY2020 Restructuring program Phase 1 Phase 2 > 2 271 employees VSP/VERP > 75% of employees took VERP > R1.2 billion restructuring cost • Head Office • Support functions across Telkom Group
Slide 21: Sustainable mobile business
Sustainable mobile business 6
Slide 22: Sustained financial performance
Annual Results Presentation 2020 22 Sustained financial performance Mobile service revenue Mobile EBITDA (IAS 17) R’m 12 593 Data R’m 2 293 Voice 2 07 3 934 Other 80.7% 54.4% 8 155 1 269 2 238 5 155 3 683 1 468 8 659 1 269 2 086 5 917 99 99 FY2018 FY2019 FY2020 FY2018 FY2019 FY2020 CAPEX spend Mobil
Slide 23: Good quality customers
Annual Results Presentation 2020 23 Good quality customers Subscriber growth Mobile broadband subscribers ‘000 Pre-paid ‘000 Smart users 11 995 Post-paid Data only 8 163 2 563 9 681 23.9% 28.0% 6 377 1 874 6 780 5 208 1 096 5 281 3 730 1 478 3 627 8742 753 1 383 7 807 9 432 FY2018 FY2019 FY2020 FY20
Slide 24: Mobile business strength- data! data! data!
Annual Results Presentation 2020 24 Mobile business strength- data! data! data! Data-led Spectrum Fibre backhaul network base stations 70% of customer Broadband led base uses data proposition
Slide 25: Financial Overview
Financial Overview 7
Slide 26: Exceptional items impacting performance
Annual Results Presentation 2020 26 Exceptional items impacting performance COVID-19 Restructuring IFRS 16 Program + R1.1 - R626 - R1.2 billion million billion on EBITDA on EBITDA on EBITDA
Slide 27: Salient features of financial performance
Annual Results Presentation 2020 27 Salient features of financial performance Strong mobile service Decline in fixed Improved mobile direct revenue growth voice revenue cost to revenue ratio z 54% 22% Improves from 52% 48% Improved Free Disciplined Strengthened Cash Flow capex allocation balance she
Slide 28: Group performance impacted by fixed voice decline
Annual Results Presentation 2020 28 Group performance impacted by fixed voice decline FY2020 FY2020 FY2019 Rm (IFRS 16) (IAS 17) (IAS 17) % Operating Revenue 43 043 43 043 41 774 3.0 EBITDA 9 602 10 330 11 309 (8.7) Headline earnings per share (cents) 208.1 504.6 722.4 (30.2) Capital investments 7 7
Slide 29: New revenue streams offset decline in traditional fixed
Annual Results Presentation 2020 29 New revenue streams offset decline in traditional fixed Revenue by product line (R bn) FY2019 FY2020 FY2019 FY2020 54.4% 1.8% 6.9% (22.2%) (7.7%) 11.2 0.8 10.2 9.4 8.7 2.1 0.5 2.4 6.6 12.6 5.2 8.2 8.1 7.0 6.7 6.9 3.9 3.0 0.6 0.7 Mobile service revenue Information
Slide 30: Effective Cost management
Annual Results Presentation 2020 30 Effective Cost management Operating expenses growth at below inflation Direct expenses in support of mobile growth Rm Rm 380 340 522 680 549 329 405 (R1 697m) 17.6% (R549m) 743 2.5% 21 567 11 314 22 116 9 617 FY2019 Employee Maintenance Other Service fees Operatin
Slide 31: Relentless focus on mobile direct costs in H2
Annual Results Presentation 2020 31 Relentless focus on mobile direct costs in H2 Mobile direct expenses to revenue ratio Rbn 48.2% 52.2% Direct expenses Revenue 55.0% 52.6% 50.9% Initiatives: 44.3% • Reduce cost to 8.1 acquire/serve 7.1 • Re-negotiated 6.0 contracts 4.7 • Optimised network 3.7 3.6
Slide 32: Reported headline earnings impacted by exceptional items
Annual Results Presentation 2020 32 Reported headline earnings impacted by exceptional items Cents 90.6 171.5 30.2% 504.6 34.4 3.8 83.2 208.1 121.1 Reported basic Write-offs of assets Other * Reported headline IFRS 16 VERP/VSP package COVID-19 Pro forma headline earnings earnings cost earnings * Tra
Slide 33: Capital expenditure remains within guidance
Annual Results Presentation 2020 33 Capital expenditure remains within guidance Capex intensity in support of key growth areas Capex allocation Rm (%) FY2020 2% 12% 19.9 Fibre services* 4% Mobile 35% OSS/BSS programme Network sustainment 7 755 7 674 7 909 47% 18.0 Subsidiaries and other 18.4 FY2018
Slide 34: Free cash flow improves threefold
Annual Results Presentation 2020 34 Free cash flow improves threefold Free cash flow (FCF) movement Rm FY2020 FY2019 % Cash generated from operations 12 756 8 903 43.3 Repayment of lease liability (1 148) − (100.0) Interest received 212 441 (51.9) Finance charges paid (1 006) (847) (18.8) Taxation p
Slide 35: Excellent working capital management
Annual Results Presentation 2020 35 Excellent working capital management Cash generated from operations movement Rm R2.7bn 1 982 667 94 43.3% R3 853m 3 109 (3 033) 1 034 12 756 8 903 FY2019 Profit before tax Net finance charges Non-cash items Improvement in Improvement in cash Improvement in FY2020
Slide 36: Improved balance sheet
Annual Results Presentation 2020 36 Improved balance sheet IFRS16 IAS17 Group net IFRS16 IAS17 Group net debt FY2020 FY2019 % finance charges FY2020 FY2019 % Bank and cash balances 4 726 1 428 231.0 Interest received 79 185 (57.3) Gross Debt 16 780 10 241 63.9 Finance charges 1 202 885 (35.8) Net de
Slide 37: Outlook Weathering COVID-19
Outlook Weathering COVID-19 7.2
Slide 38: Financial resilience in a depressed economic environment
Annual Results Presentation 2020 38 Financial resilience in a depressed economic environment Sustainable cost Cash management Preservation Financial risk Disciplined capital management allocation
Slide 39: Focus areas
Annual Results Presentation 2020 39 Focus areas Sustainable cost Cash Target Target management preservation Reduction in fixed costs Supply Chain financing R700m - Reduce cost to serve/acquire Positive free R1bn Savings R1bn-R2bn Handsets Receivables cashflow target Fixed term contracts review Dispo
Slide 40: Mitigating re-financing risk
Annual Results Presentation 2020 40 Mitigating re-financing risk Rm Foreign Loans Floating Term Loans Fixed 6000 31% 48% Bonds 69% 52% Commercial Paper Call Borrow 5000 Actuals Interest FY2019 FY2020 4000 84% Long-term debt Short-term debt 3000 2000 Debt 53% 47% profile 1000 16% 0 FY2018 FY2019 FY20
Slide 41: Adequate headroom in a volatile environment
Annual Results Presentation 2020 41 Adequate headroom in a volatile environment Rm 0.8x 2x 1.3x +R7.2 bn net debt headroom Facilities available 2x R5.7bn in R0.25bn in committed uncommitted facilities facilities 19 204 DMTN limit 12 054 ECA funding 10 581 increased from 9 602 secured 8 813 R10bn to
Slide 42: Capital allocation framework
Annual Results Presentation 2020 42 Capital allocation framework 1 Inputs 4 Outputs Annual Strategic Planning/Investment Strategy Sources of capital 2 Operational cashflow and cash release initiatives Debt Alternaive funding Issuance Equity issuance solutions Maintain a strong balance sheet Optimal T
Slide 43: Progress against guidance
Annual Results Presentation 2020 43 Progress against guidance FY2019 – FY2021 FY2020 FY2019 - FY2020 Medium term Actual Actual (CAGR 2yrs) guidance* Operating Mid-single digit 3.0% 4.2% revenue EBITDA Mid-single digit (8.7) (0.4%) Capex to revenue 16% - 20% 18.0% 18.2% Net debt to EBITDA 1.3x (post
Slide 44: Small Medium Business
Annual Results Presentation 2020 44 Small Medium Business 8
Slide 45: SME’s are the future of the economy
Annual Results Presentation 2020 45 SME’s are the future of the economy Scaling SME’s through a digital platform ecosystem Launched Evolution • Yep! brand that seeks to rally the brave • Yep! eMarketplace to evolve into a new Digital digital ecosystem into a fully flagged Digital Platform ecosystem
Slide 46: Our Digital Platform ecosystem
Annual Results Presentation 2020 46 Our Digital Platform ecosystem MARKETPLACE An online platform for small businesses to BUY and SELL products & services, and BID for new business opportunities to grow their business GO TO MARKET Sell, Buy and Bid for new work BUSINESS Telkom Business Online allows
Slide 47: Value unlock
Annual Results Presentation 2020 47 Value unlock 9
Slide 48: Operating model journey
Annual Results Presentation 2020 48 Operating model journey Commercial Regulatory Value focus compliance realisation Functionally separated Structurally separated Profit Cost & capital Strategic accountability efficiency flexibility
Slide 49: Value unlock rationale
Annual Results Presentation 2020 49 Value unlock rationale Valuation Strategic Capital gap imperatives allocation • Trading at telco multiple • Scale • Limited capital • Sum of the parts not • Capability • Generate capital recognized • Growth • Underlying infraco assets not recognised
Slide 50: Valuation gap – indicative value
Annual Results Presentation 2020 50 Valuation gap – indicative value FY2020 underlying EBITDA Sum of the Parts valuation (R’billion) Trading at significant discount to the sum of the parts Masts & Towers 39 Properties Open Serve Gyro BCX Telkom Telkom Market Market Consumer Business SOTP Discount Ca
Slide 51: M&T value unlock opportunity
M&T value unlock opportunity 10
Slide 52: M&T Portfolio performance
Annual Results Presentation 2020 52 M&T Portfolio performance Revenue Total tenant growth Rm Number of leases1 49.7% 7.7% 1246 9 710 832 9 013 FY2019 FY2020 FY2019 FY2020 EBITDA EBITDA margin Rm % 120.5% 64.6% 805 43.9% 365 FY2019 FY2020 FY2019 FY2020 Note: 1 External and Telkom Mobile tenancy only
Slide 53: Anchor tenants represent 37% of total tenants
Annual Results Presentation 2020 53 Anchor tenants represent 37% of total tenants Overview of tenants and addons (# of tenants and addons) 453 123 922 284 761 1 886 5 408 841 4 832 1 245 2 024 779 Total Total 3rd Other non Total 3rd party Telkom Total anchor party MNO tenants addons Mobile loading M
Slide 54: Tower precedent transactions
Annual Results Presentation 2020 54 Tower precedent transactions Precedent transactions in Africa Precedent transactions internationally EV/Tower Most Relevant (US$ ‘ 000) EV/EBITDA EV/EBITDA to Gyro (x) (x) 16.0x 13.3x 11.2x 10.5x 171 165 8.5x 8.1x 12.3x 8.5x 2016 2016 2017 2017 2018 2019 36 Asia A
Slide 55: Investment case
Annual Results Presentation 2020 55 55 Investment case • TowerCos have a proven and scalable business model which has translated Unique business model into extraordinary shareholder returns of >100% over the past 5 years • High quality tower portfolio of ~3,650 sites with a tenancy ratio of 1.32x, H
Slide 56: Thank you Q&A
Telkom SA SOC Ltd Thank you Q&A