Slide 1: Group annual results
Group annual results Provisional results for the year ended March 31, 2007 Telkom SA Limited Building for a converged future. 13 June 2007
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 highlights
Group highlights Reuben September Group overview
Slide 4: Financial summary
Telcordia provision US$70m (R527m) Financial summary 8.4% growth in Group operating revenue to R51.6bn 38.3% Group EBITDA margin 39.6% Fixed-line EBITDA margin excluding Telcordia 1.4% decrease in Group operating profit to R14.5bn 20.9% growth in mobile revenue to R41.1bn 1 22.4% growth in mobile op
Slide 5: Operational highlights
Annuity revenue VPN & MPN services Managed data sites ADSL services Mobile leased lines Bundled packages Total mobile customers Defensive strategies delivering results Corporate market responding well to value added data services Mobile growth remains strong Operational highlights 13.5% R5,137.1m to
Slide 6: Operational highlights (continued)
Consumer demand remains strong Telkom driving hard to build out network, products and services Operational highlights (continued) 82% of network with ADSL and WiMAX coverage 60% of local loop under 2.5km 250% growth on sales of ‘term and volume’ contracts 288,881 Closer Plan subscriptions – 18% pene
Slide 7: Roll-out of key enablers progressing well
Data Mobile Geographic Roll-out of key enablers progressing well Growth profile Employee engagement Customer centricity NGN deployment Stakeholder management Cost management Acquisition growth Capitalising on convergence & mobility Strategic pillars - key enablers for revenue growth and retention
Slide 8: Defending traditional and aggressively building for the new
Defending traditional and aggressively building for the new Group growth initiatives Accelerating data growth – ADSL, VPN, MPN & Mobile leased lines IT – Managed hosting environments Driving Broadband penetration Convergence – expanding into the application layer by integrating fixed-line and mobile
Slide 9: Speed of action is imperative
Speed of action is imperative Mobile strategy Reviewing mobile partnership to achieve a fixed-mobile service provider model across the fixed and mobile value chain Maximise services into the growing converged solutions market Integrate capabilities into the managed hosting environment Offer Swiftnet
Slide 10: Cost management remains a key focus area
Cost management remains a key focus area Cost initiatives Renegotiate service and equipment contracts Focussed move to automate assurance and fulfilment Equipment sourced directly from original equipment manufacturers Pursue turnkey capital programmes Improve maintenance support and licensing models
Slide 11: Mobile business – highlights
Operating revenue 1 Total customers ARPU 2 EBITDA margin Data revenue 1 Remains market leader in South Africa Churn 2 Mobile business – highlights 20.9% R41,146m to 20.1% 23.0m to 10.7% R125 to 0.1% 34.6% to 64.0% R3,342m to 33.8% 17.7% from 1. 100% Vodacom (50% consolidated) 2. South Africa
Slide 12: Group highlights – Financial overview
Group highlights Kaushik Patel Financial overview
Slide 13: Group income statement
Building the foundation for the future Group income statement (3.7) 19,785 20,553 EBITDA (5.1) 8,849 9,328 Net profit 4.6 (4,731) (4,523) Taxation (3.7) 1,681.0 1,746.1 Basic earnings per share (cents) (8.0) (1,125) (1,223) Finance charges (40.8) Investment income (1.4) 14,470 14,677 Operating profi
Slide 14: Fixed-line business remains the major contributor to the Group
Fixed-line business remains the major contributor to the Group Segmental contribution after inter-segmental eliminations Operating revenue Operating profit Profit attributable to equity holders
Slide 15: Steady growth of annuity revenue and data services
Steady growth of annuity revenue and data services (1.0%) (4.7%) 8.3% 1.7% 6.4% 12.6% Fixed-line revenue ZAR million 2006 2007
Slide 16: Fixed-line traffic
0.0% (6.4%) (13.9%) (1.3%) (8.8%) 8.3% 1.0% (4.4%) Tariff reduction, ADSL rollout and cannibalisation by bundled products contribute to a decrease-in-traffic revenue Fixed-line traffic Traffic revenue Traffic volumes ZAR millions Millions of minutes
Slide 17: Fixed-line revenue (continued)
Strong growth in mobile data Regulatory changes may be beneficial to fixed-line margin 2.4% 12.6% Fixed-line revenue (continued) (1.0) 1,638 1,654 Interconnection revenue (7.9) International 7.2 Mobile % 2007 2006 ZAR millions 21.7 1,664 1,367 Mobile leased facilities 10.2 5,820 5,282 Leased lines %
Slide 18: Fixed-line operating expenses
7.2% Focus on service delivery, network reliability and new products and services to satisfy and anticipate the needs of our customers Fixed-line operating expenses (17.7) 3,623 4,404 Depreciation, amortisation, impairment and write-offs 1.3 Operating leases 7.9 2,212 2,050 Services rendered 37.5 4,
Slide 19: Employee expenses
Employee expenses: building skills and meeting sophisticated and time dependent customer demands 12.3% Employee expenses 12.3 (696) (620) Labour capitalised (72.7) Workforce reduction 12.7 2,715 2,410 Benefits 13.8 5,225 4,592 Salaries and wages % 2007 2006 ZAR millions Total (Rm)
Slide 20: Selling, general and administrative expenses
Maintaining competitive edge and marketing for competition 37.5% Selling, general and administrative expenses 55.4 Marketing (24.6) Bad debts 78.7 1,553 Other (including Telcordia provision) 18.0 1,908 1,617 Materials & Maintenance % 2007 2006 ZAR millions Total (Rm)
Slide 21: Group balance sheet
Group balance sheet 45.0 9,901 6,828 Net debt 2.8 59,146 57,544 Total equity & liabilities 18.5 18,584 15,687 Current liabilities (31.0) 8,554 12,391 Non-current liabilities 8.6 32,008 29,466 Capital & reserves (18.5) 10,376 12,731 Current assets 2.8 59,146 57,544 Total assets 8.8 48,770 44,813 Non-
Slide 22: Fixed-line capex
Majority spent on baseline expansion Capex program frontloaded where possible Capex/revenue ratio 20.0% Fixed-line capex 22.1 Other (30.2) Sustainment (57.5) Revenue generation 33.2 Support 34.6 6,641 4,935 Total 1,153.3 Regulatory 5.6 1,141 1,080 Efficiencies & improvements 137.6 Network evolution
Slide 23: Group cash flow
Cash utilised to repay debt, tax and fund dividends and capex Group cash flow (302.7) (3,976) 1,962 Net increase/(decrease) in cash (92.8) 4,255 Cash at the end of the year 42.9 (10,412) (7,286) Investing activities (47.5) 3,728 7,104 Free cash flow 1,031.8 (2,920) (258) Financing activities (1.6) 9
Slide 24: Mobile financial highlights
Profit from operations increased by 22.5% to R10.9 billion 20.9% 25.0% 40.3% 22.5% Mobile financial highlights ZAR million ZAR million ZAR million ZAR million 100% Vodacom (50% consolidated) 1. Including intangibles
Slide 25: Leading the South African mobile market
South African market continues to grow strongly 20.1% 18.8% 91.0% 10.7% Leading the South African mobile market Thousands Thousands ZAR % 1. Blended ARPU
Slide 26: Performance in other African countries
Impressive performance from the African portfolio 64% 102% 55% 68% 35% Performance in other African countries Customers Thousands ARPU 1 ZAR 1. Blended ARPU
Slide 27: 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 28: Fixed-line business
Reuben September Fixed-line business
Slide 29: Pricing strategy
Extend value and savings Broadband price reduction Rebalance tariffs Rebalance to reduce arbitrage risk Reduce prices of data services Pricing for volume, penetration, loyalty and up-scaling Pricing strategy Aligning tariffs with cost Reduce broadband prices to remain competitive – drive volumes and
Slide 30: Pricing
Telkom has reduced prices 13% effectively Pricing % Difference between Basket Tariff change and CPI Telkom will file an overall price decrease of 1.2% against an allowable basket increase of 8.7% 1 including the carry-over The productivity offset figure (X-factor) is 3.5% 1. Allowable increase = 3.5
Slide 31: Strong data growth
Telkom continues to offer premium data service 29.6% 7.1% 11.2% Strong data growth 78.1% growth in ADSL subscribers to 255,633 14.3% growth in 64 kbit/sec equivalent circuits 19,247 22.2% growth in Internet satellite subscribers to 2,420 1. Includes dialup, ADSL and satellite internet users
Slide 32: DSL performance
Creating niches for best in class prices DSL performance ADSL year-on-year growth
Slide 33: ADSL service initiatives
ADSL service initiatives Introduction of ADSL Self Install Option to improve Average-Time-To-Install 40% of new orders now done through Self Install Reduced ADSL Average-Time-To-Install from 31 to 23 days on average, where infrastructure is available Broadband Demand Register to capture and identify
Slide 34: Broadband – premium quality
Differentiating on content, quality and speed Moving into the converged future March 31, 2008 target – 420,000 subscribers do Broadband – premium quality
Slide 35: Bundles
2008 Target: 530,000 up 84% Bundles Closer 1 Designed to suit your pocket at only R120 per month Closer 2 Unlimited calls anywhere in SA during Callmore time limited to 1 hour per call for R145 Closer 3 For R300 per month get all the benefits plus cellular savings with pure per second billing Closer
Slide 36: Key NGN achievements
Aggressively expanding capacity to cater for converged services Key NGN achievements National IP Network (IPNet) Bandwidth increased from 18.9 Gbit/s to 28.9 Gbit/s Growth of 53% International IP Network (IPNet) Bandwidth increased from 1.5 Gbit/s to 2.4 Gbit/s Growth of 60% National Transport Netwo
Slide 37: Key NGN achievements (continued)
International connectivity and speed is key for data growth and the Pan African strategy Key NGN achievements (continued) Diginet and Diginet Plus Services Bandwidth increased from 17.3 Gbit/s to 20.8 Gbit/s Growth of 20% ATM Network Bandwidth increased from 80 Gbit/s to 104 Gbit/s Growth of 30% SAT
Slide 38: Key NGN developments
Moving legacy voice and leased line services to NGN platform Key NGN developments Development in progress for Voice over IP portfolio NG Voice on IMAX Voice over Broadband Voice over WiMAX Development of New Generation Diginet capability NGD Frame based on ATM NGD LAN based on Metro Ethernet The PST
Slide 39: Holistic wire-line and wireless approach to broadband
Holistic wire-line and wireless approach to broadband WiMAX – complementing ADSL sweet spots 14 base stations commissioned Target of 57 base stations to be built Internet WiMAX products launched Voice service planned to be launched in the last quarter of the 2007/2008 financial year
Slide 40: Telkom Media
To be Africa’s Digital Media Provider of Choice Diversifying revenue streams for Telkom Becoming the partner of choice for the media industry Providing an integrated, multi- platform approach Open access to unaddressed pay-TV market in emerging middle class Developing South Africa’s media economy th
Slide 41: Telkom Media digital services
Video On Demand User Generated Content Portal Services Interactive Services Converged Services High Speed Broadband Access Telkom Media Digital services via Internet, satellite and IPTV TV content, video-on-demand and interactive services (portals, music, games) Planned basic bouquet of channels est
Slide 42: Pan-Africa strategy
Pan-Africa strategy Lead the expansion in Africa through a Service Provider Strategy Aggressively expand Africa Online footprint into the continent Aligned with domestic Fixed/Mobile Service Provider Strategy Acquisitions focussed on key regional hubs Fixed and Mobile voice for Africa Global connect
Slide 43: Multi-Links
Established key regional footprint on West Coast of Africa Multi-Links Acquired for USD280m in April 2007 USD1bn Capex planned over 5 years Cashflow positive by 2010 Fixed, mobile, data subscribers: 816,000 1,500km of fibre optic cable Management team established Multi-Links is a PTO in Nigeria with
Slide 44: Multi-Links – focus for the future
Multi-Links – focus for the future Increase revenue of fixed wireless and mobile customer through national brand awareness and promotion campaign To provide easy-to-understand high-value bundles , differentiated on voice quality and service Introduce Broadband Internet with ISP services to offer hig
Slide 45: Africa Online
Aggressively expand ISP services in conjunction with Telkom and Telkom Media Africa Online Africa Online is an Internet Service Provider based in Kenya, Tanzania, Cote d’Ivoire, Ghana, Uganda, Namibia, Swaziland, and Zimbabwe Key financial data Acquired for R150m (GBP10.3m) in March 2007 Month of Ma
Slide 46: Africa Online – focus for the future
Large African footprint of ISP services provides multiple opportunities Africa Online – focus for the future Investment approach focuses on brand development creation and development of customer channels market expansion improvement of network systems human resource development Joint venture with Ve
Slide 47: Key regulatory issues
Electronics Communications Act RICA Act Interconnection Facilities leasing Key regulatory issues Impact on Telkom: Licenses to be converted to network license and service license Deadline July 2008 Uncertainty as to impacts of conversion Telkom and Vodacom remain in consultation with the Office of I
Slide 48: Key regulatory issues (continued)
Unbundling of the local loop Outstanding matters SAT-3 Key regulatory issues (continued) Government expects it to be completed by 2011 Awaiting decision on: Technical and functional regulations Where the local loop is to be unbundled Costing, dealing with access line deficit Operational systems stil
Slide 49: Key regulatory issues (continued)
Minister of Communication’s budget speech 2007 Key regulatory issues (continued) VANS licensees may be authorised to provide services as well as provide and operate facilities/networks Attempt to have Infraco deemed as “holder of an individual electronic communications network service license” Frequ
Slide 50: Customer centricity
Sustainable profitable growth in customer base requires creating and strengthening capabilities focused on managing customer relationships and learning from acquired customer information Anticipating customer needs Revenue Growth Revenue retention Customer satisfaction through managing customer expe
Slide 51: Roadmap for the journey
An intensive 2 year programme Foundation 2 Enhancing 1 to 1 treatment capabilities Building 1 to 1 treatment capabilities Roadmap for the journey Foundation 1 Quick-wins and momentum programs Building the foundation of customer centricity Competitive advantage Time 36 initiatives from Phase 1 & 2 al
Slide 52: Thank you
Thank you Investor Relations: Nicola White Tel: +27 12 311 5720 Fax: +27 12 311 5721 E-Mail: whitenh@telkom.co.za Building for a converged future.