Telkom Sa Soc Ltd. · JSE:TKG
Telkom Sa Soc — FY2010 Earnings Presentation
48 slides from Telkom Sa Soc's earnings presentation, 2010
Slide 1: Telkom Results Presentation
Telkom Results Presentation For the year ended 31 March 2010
Slide 2: Forward looking statement
Forward looking statement Special note regarding forward-looking statements Many 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, constitute or are based on forward looking statements. Al
Slide 3: Overview
Overview Reuben September
Slide 4: Presentation Overview
Presentation Overview o Telkom under pressure – economic conditions, regulations and competition o Mobile and broadband to improve Telkom SA offering - Mobile launch imminent o Multi-Links – realise shareholder value through partnerships or exit o EBITDA improvement plan signed off by business units
Slide 5: Group normalised financial features
Group normalised financial features Normalised 0.7% 260 36,784 37,029 175 125 (15.2%) 115 11,574 9,809 (11.2%) 532.7 473.0 Operating EBITDA HEPS Revenue 2009 2010 Rm Rm Cents Cents per share 2009 2010 Ordinary Special Normalised free cash flow increased to R5.5 billion 5
Slide 6: Traffic revenue
Traffic revenue Rm 2009 2010 % Voice revenues Local 3,634 3,205 (11.8) cannibalised by: o Subscription based Long distance 2,036 1,805 (11.3) plans o Virtual private Fixed-to-mobile 7,409 6,452 (12.9) networks o Managed network Fixed-to-fixed 11 37 236.4 services o Mobile substitution International
Slide 7: Defend and grow highlights
Defend and grow highlights Subscription based plans o Closer package subscribers increased by 20.6% to 694,348 o Do Broadband subscribers increased by 25.4% to 236,512 o Supreme Call subscribers increased by 41.2% to 20,873 Revenue (Rm) 2009 2010 % Line Rental 4,929 4,989 1.2 Calling Plans 1,300 1,4
Slide 8: Data revenue
Data revenue Subscribers 18.1% 20.9% 647,462 511,535 549,015 25.4% 423,198 236,512 10.8% 188,540 29,979 33,226 Managed data Do Broadband ADSL Internet all access network sites 2009 2010 Data annuity revenue (Rm) 2009 2010 % Data connectivity 4,951 5,136 3.7 Total data revenue Leased line facilities
Slide 9: Interconnection revenue
Interconnection revenue Rm 2009 2010 % Mobile to fixed 560 531 (5.2) International mobile 356 512 43.8 outgoing Fixed domestic 111 228 105.4 interconnection International 1,057 1,337 26.5 interconnection TOTAL 2,084 2,608 25.1 MTR cuts - revenue decreased by R71 million and payments to mobile operat
Slide 10: EBITDA improvement – targeting R2 billion +
EBITDA improvement – targeting R2 billion + Telkom has developed an end state vision o Sustainable model to serve customers effectively, e.g. • access strategy • optimising product portfolio • sale channel usage • field force and contact centre effectiveness o Extract non-labour efficiencies, e.g. •
Slide 11: EBITDA improvement - proposed master plan
EBITDA improvement - proposed master plan Wave 1 (2010/11) Wave 2 (2011/12) Wave 3 (2012/13) • Field Force Effectiveness (network infrastructure • Access strategy – Copper • Further network Network & IT planning & field operations) decommissioning opportunities • ITS outsourcing • Product portfolio
Slide 12: EBITDA improvement - achievements to date
EBITDA improvement - achievements to date Launched voluntary separation package for management Savings achieved to date - R214 million – cost efficiencies throughout company Reduced average handling times by 25% in the contact centre pilot
Slide 13: Multi-Links – financial features
Multi-Links – financial features o Total revenue increased 35.1% to NGN36.5 billion o Traffic revenue decreased 6.2% to NGN16.4 billion Revenue o Interconnection revenue increased 315.3% to NGN14.1billion • Switched hubbing: NGN10.5 billion o Data revenue increased 81.8% to NGN3.1 billion o Operatin
Slide 14: Multi-Links – operational features
Multi-Links – operational features o Voice subscribers increased 18.7% to 2.2 million at 31 March 2010 Subscriber o Data subscribers increased 1,580.0% to 45,340 growth o Data contributes 8.6% to Naira revenue o Rolled out additional 373 base transceiver stations Capital o 4,639 km of fibre and addi
Slide 15: Multi-Links focus areas
Multi-Links focus areas Improve current operations Strategic direction o Targeted initiatives to grow profitable o Focus on data centric products, revenue broadband and VPN • Segmentation of existing customer base o Board considering how best to • Continued growth in mobile broadband reduce exposure
Slide 16: Telkom Mobile – Mobile launch imminent
Telkom Mobile Mobile launch - imminent Brand and Co-locations Distribution products agreements signed signed developed Roaming Initial 40% own IT systems in agreements traffic coverage place signed 16
Slide 17: Telkom mobile
Telkom mobile o Focus on simplicity, quality and value o Launching pre-paid, post-paid and hybrid voice & data, 2G voice & data, 3G voice & data o Differentiated services o Domestic roaming agreement signed with MTN • Covers voice, 2G & 3G data, SMS, MMS & USSD • Floor price includes minutes; unutil
Slide 18: Telkom mobile
Telkom mobile o Dual ran software – provides 2G & 3G cost- effectively o Software upgrade to 4G in future o Software Definable Radio – significant flexibility and spectrum efficiency o Backhaul is IP over Ethernet or IP over TDM o Using infrastructure sharing and co-location to reduce capex spend o
Slide 19: MWeb Africa and Africa Online
MWeb Africa and Africa Online o Integration complete by end September 2010 – one board of directors, one executive committee, single country managers o Rebranded as iWay Africa o New drive to push ISP business up ICT value chain o Developing Pan-African city to city backbone infrastructure and hub t
Slide 20: Telkom core global submarine cable network
Telkom core global submarine cable network (current & future) o SAT3 and SAFE upgraded to SAT3/SAFE full design capacity – in excess Seacom of 300Gb/s and 400Gb/s EASSy (Jun 2010) respectively WACS (Jun 2011) EIG (Jun 2010) SMW3 o EASSY scheduled to be COL3 operational by August 2010 – design capaci
Slide 21: Data Centre Operations
Data Centre Operations Cybernest launched in November 2009 o Independent business unit – autonomy and agility o Telkom’s total Data Centre’s capacity largest in South Africa – 9700 m2 o Nominated by Cisco as the Most Innovative Data Centre Project of the year – green approach o Selected IT staff tra
Slide 22: Telkom has ability to deliver on its strategy
“Telkom “Telkom hashas ability ability to deliver to deliver on its strategy” on its strategy” Leadership, Leadership, committed committed staff, capital, staff, capital, technology, technology, innovation innovation
Slide 23: 2010 World cup
2010 World cup World class technology for 2010: o Compliant to FIFA specifications • Dual optic-fibre routes – redundancy with no single point of failure from stadium to broadcast centre • 99.99 percent availability of network without failure during matches • Self healing capability of network • 40G
Slide 24: Financial overview
Financial overview Peter Nelson
Slide 25: Group normalised statement of comprehensive income
Group normalised statement of comprehensive income 2009 2010 ZAR million % Normalised Normalised Operating Revenue 36,784 37,029 0.7 Other income 351 402 14.5 Operating expenses (30,220) (32,746) 8.4 Operating profit 6,915 4,685 (32.2) Investment income 183 508 177.6 Finance charges and fair value m
Slide 26: Unusual items impacting results
Unusual items impacting results 2009 o Effect of elimination of revenue from and payments to Vodacom in the prior year o Impact of the FIFA contract of R119 million revenue, operating expenses of R119 million and R133 million amortisation o Impairment of goodwill of Multi-Links of R462 million and A
Slide 27: Normalised EBIT contributors
EBIT 2009 6,915 Telkom SA (1,571) ZAR million Multi-Links (567) International (100) Corporate Centre (81) Normalised EBIT contributors MWEB Africa (16) (R2,230 million) (1) Africa Online 15 Swiftnet 91 Trudon EBIT 2010 4,685
Slide 28: Effect of adjustments on basic earnings per share
Effect of adjustments on basic earnings per share 2009 2009 2010 2010 Basic earnings Rm cents Rm cents Basic earnings as reported (Rm) 2,308 461.0 37,352 7,404.7 Vodacom (899) (179.6) (40,506) (8,029.9) Vodacom eliminations (655) (130.9) Vodacom transaction expense 177 35.4 Vodacom deferred tax asse
Slide 29: Effect of adjustments on headline earnings per share
Effect of adjustments on headline earnings per share 2009 2009 2010 2010 Headline earnings Rm cents Rm cents Headline earnings as reported (Rm) 3,057 610.5 236 46.8 Vodacom (899) (179.5) 1,943 385.2 Vodacom eliminations (655) (130.8) Vodacom transaction expense 177 35.4 Vodacom deferred tax asset (4
Slide 30: Normalised finance charges and fair value movements
Normalised finance charges and fair value movements 2009 2010 ZAR million % Normalised Normalised Group Interest expense 1,732 1,313 (24.2) interest-bearing debt Local loans 1,895 1,535 (19.0) (46.7%) 18,275 Foreign loans - 11 - Finance charges capitalised (163) (233) 42.9 9,737 Foreign exchange los
Slide 31: Group statement of financial position
Group statement of financial position ZAR million 2009 2010 % 0.5x net debt to EBITDA Non-current assets 51,002 44,518 (12.7) 1.3 Current assets 11,287 12,301 9.0 0.5 Disposal group held for sale 23,482 - - Total assets 85,771 56,819 (33.8) 2009 2010 Capital & reserves 35,495 30,264 (14.7) 13.6% ret
Slide 32: Group normalised free cash flow
Group normalised free cash flow ZAR million 2010 Cash generated from operations 8,063 Add back: CGT liability 1,353 STC on R19 dividend 977 STC on R2.60 special dividend 135 Normalised cash generated from operations 10,621 Proceeds on disposal of PPE and intangibles assets 21 Additions on PPE and in
Slide 33: Telkom SA revenue
Telkom SA revenue ZAR million (0.7%) (9.3%) 7.1% 3.0% 25.1%
Slide 34: Telkom SA traffic revenue
Telkom SA traffic revenue Traffic revenue (12.9%) 7,409 ZAR million 6,452 (11.8%) 3,634 (11.3%) 14.2% 3,205 (2.5%) 2,036 1,805 236.4% 1,484 1,300 933 910 37 11 Local Long distance Fixed-to-mobile Fixed-to-fixed International outgoing Calling plans (21.1%) 8,822 Traffic volumes Millions of minutes 6,
Slide 35: Group normalised operating expenses drivers
Group normalised operating expenses drivers Category Segment Driver Employee • Annual salary increases and an adjustment to accelerate the Telkom SA expenses elimination of disparities • Higher maintenance cost on new technologies and higher maintenance material cost Telkom SA SG&A • Write down of s
Slide 36: Group normalised operating expenses
Group normalised operating expenses ZAR million 2009 2010 % Group normalised operating expenses Employee expenses 8,015 8,925 11.4 8.4% Payments to other operators 8,430 8,386 (0.5) 32,746 SG&A 5,704 6,643 16.5 30,220 Service fees 2,579 2,702 4.8 Operating leases 833 966 16.0 2009 2010 Depreciation,
Slide 37: Company normalised operating expenses – H1 vs H2
Company normalised operating expenses – H1 vs H2 ZAR million 2010 H1 2010 H2 % 2009 2010 % Telkom SA operating expenses Employee expenses 4,178 4,292 2.7 7,631 8,470 11.0 Payments to other operators 3,929 3,514 (10.6) 7,536 7,443 (1.2) SG&A 2,551 2,308 (9.5) 4,280 4,859 13.5 Service fees 1,320 1,330
Slide 38: Group capital expenditure – major items
Group capital expenditure – major items ZAR million 2009 2010 % Access network 587 402 (31.5) Legacy 452 284 (37.2) Mobile - 181 - Next Generation Network 2,180 1,095 (49.8) Fiber 757 567 (25.1) International 240 289 20.4 Information operations 431 202 (53.1) Customer premises equipment 432 299 (30.
Slide 39: Group debt comparison
Group debt comparison ZAR million 2009 2010 Movement TL 12 1,059 1,059 - TL 15 1,159 1,159 - TL 20 1,325 1,374 49 Syndicated loan 1 817 - (817) Syndicated loan 2 3,266 3,268 2 Private placements 1,480 1,711 231 Fixed term loan 2,000 - (2,000) Commercial paper bills 5,476 - (5,476) Foreign loan 138 1
Slide 40: Debt maturity as at 31 March 2010
Debt maturity as at 31 March 2010 ZAR million 2010 Maturing in the 2010 calendar year Private placing (PP02 and PP03) 1,780 Foreign loan 10 Maturing in the 2011 calendar year Foreign loan 14 Maturing in the 2012 calendar year TL12 1,060 Foreign loan 9 Maturing after 2012 Syndicated loans (maturing i
Slide 41: Guidance
Guidance Capex expected to range between 20% and 25% of revenue Long term net debt to EBITDA of 1.4x
Slide 42: Au Revoir – TKG Group CEO to retire
Au Revoir – TKG Group CEO to retire Prior to becoming CEO o Established an undersea fibre cable system around the African content o Set up the National Network Operations Centre (NNOC) o Drove network digitalisation and upgrade initiatives o Embedded Next Generation Technologies to support fixed-mob
Slide 43: Au Revoir cont. Telkom is ready to make it happen
Au Revior cont. As he leaves.... o The strategy is in place o The structure is in place o All the operating components necessary to provide the full spectrum of converged services are in place o Investment in NGN set to begin reaping rewards and provide competitive advantage in the fixed, mobile and
Slide 44: For information purposes
For information purposes
Slide 45: Multi-Links statement of comprehensive income
Multi-Links statement of comprehensive income excluding Impairment Naira millions 2009 2010 % Operating revenue 27,061 36,548 35.1 Other income 3 266 - Operating expenses (34,111) (57,192) 67.7 Operating profit (7,047) (20,378) 189.2 EBITDA (2,814) (12,927) 359.4 EBITDA margin (%) (10.4) (35.4) 240.
Slide 46: Multi-Links operating expenses
Multi-Links operating expenses excluding impairment Naira millions 2009 2010 % Employee expenses 1,888 2,298 21.7 Payments to other operators 9,369 16,240 73.3 SG&A 15,405 25,582 66.1 Service fees 459 363 (20.9) Operating leases 2,757 5,258 90.7 Depreciation, amortisation, impairments 4,233 7,451 76
Slide 47: Multi-Links statement of financial position
Multi-Links statement of financial position Naira millions 2009 2010 % Non-current assets 64,829 13,361 (79.4) Current assets 22,746 7,889 (65.3) Total assets 87,575 21,250 (75.7) Capital & reserves (20,483) (38,987) 90.3 Non-current liabilities 86,828 39,545 (54.5) Current liabilities 21,230 20,692
Slide 48: Telkom Company statement of comprehensive income
Telkom Company statement of comprehensive income ZAR million 2009 2010 % Operating Revenue 33,659 33,911 0.7 Other income 524 21,298 - Operating expenses (29,478) (37,032) 25.6 Operating profit 4,705 18,177 286.3 Investment income 2,907 800 (72.5) Gain on distribution of a asset - 30,466 - Finance c