Slide 1: Telkom SA Limited Analyst open day
Exhibit 99.4 Telkom SA Limited Analyst open day April 6, 2006 www.telkom.co.za/ir
Slide 2: Forward-looking statements
All statements contained herein, as well as oral statements that may be made by us or by officers, directors or employees acting on behalf of the Telkom Group, that are not statements of historical fact constitute “forward-looking statements” within the meaning of the US Private Securities Litigatio
Slide 3: Strategic overview
Strategic overview Papi Molotsane Papi Molotsane Chief Executive Officer
Slide 4: Group overview
Group overview Group structure The Government of South Africa 38.5% PIC Investment Corporation 10.6% Elephant Consortium 5.6% Free float 41.0% Treasury shares 4.3% Telkom Directory Services 64.9% Swiftnet 100% Subsidiaries Joint venture Vodacom Group 50%
Slide 5: Group overview: key strengths
Group overview Key strengths One of the most influential ICT players in South Africa Unmatched scale and capabilities Exceptional historical financial performance and cash generation Strong leadership and quality employees A new strategy to adapt to changes in environment
Slide 6: Group net profit drivers
Group net profit drivers Group Revenue ( ZARm ) EBTDA margin (%) Net debt to equity (%) Cash flow from operations ( ZARm ) HEPS (cents) Return on assets (%) Sep not annualised
Slide 7: Key challenges
Key challenges Increasingly complex technology and products More informed and demanding customers Tighter and rapidly changing regulations Cost-based pricing by the Regulator Electronic Communications Bill Growing competition SNO becoming operational during the year The introduction of carrier pre-s
Slide 8: The Telkom way
Results Driven Focused Delivery Empowering Leadership Inspire our People Change Agent Obsessed with Customer Satisfaction Analyzing Customer Needs We act with honesty and integrity We will promote an entrepreneurial and innovative spirit We are proud and passionate about what we do The Telkom way Ou
Slide 9: Positioning Telkom as a leading ICT solutions provider
= 2 Positioning Telkom as a leading ICT solutions provider Revitalised focus on our customers and employees
Slide 10: Group priorities
Group priorities Customer centricity Enhancing customer satisfaction through customer centricity Aim to consistently “delight” customers Revenue retention and growth Retaining existing revenues and growing new revenue streams Employee engagement Engaging employees to build a performance culture Stro
Slide 11: Telkom by 2010: targets
To be a leading customer and employee centered ICT solutions service provider Telkom by 2010: targets Financial Organisational 50% - 55% positive employee engagement score Top 10 employer of choice in SA 20% executive leadership rotated / refreshed annually 90% retention of top talent Significant im
Slide 12: Revenue retention and growth
Revenue retention and growth Wally Beelders Wally Beelders Chief Sales and Marketing Officer
Slide 13: Revenue retention and growth
Revenue retention and growth ROA (after nominal tax rate) EBITDA margin Operating revenue DSL services Progress on equity investment in IT company Create growth opportunities beyond SA borders & develop new - age offerings in existing (transforming) markets in order to supplement diminishing revenue
Slide 14: Growth areas fall into three growth horizons
Growth areas fall into three growth horizons Three horizons growth initiatives Horizon 1 Horizon 2 Horizon 3 Performance parameter Time Generate ideas and options that will ensure the company’s longer term future e.g international expansion Africa Build emerging businesses that will drive medium ter
Slide 15: Revenue
Revenue Telkom’s revenue impacted by Price adjustments to meet customer expectations & regulatory requirements Volume losses to new competition from SNO, VANS & ISP’s Mobile substitution Cannibalisation of national voice traffic by accelerated DSL rollout Wholesale business (interconnect) from new m
Slide 16: Subscriptions, connection and traffic revenue drivers
Subscriptions & connection revenue impacted by: Tariff rebalancing Volume driven by expansion in business segment CPE rental resulting from end-to-end product offerings Market share losses to SNO, VANS & ISP’s Traffic revenue impacted by : Tariffs on mobile outgoing, long distance & local standard -
Slide 17: Wholesale and data revenue drivers
Wholesale revenue impacted by: New revenue from domestic fixed - line interconnect & co - location with SNO Effect of regulatory cost - based pricing (FAC / LRIC) in international incoming & mobile interconnect products Data revenue impacted by: Rollout of DSL product range Accelerated rollout of DS
Slide 18: Growth of data and converged IP services
Introduce next generation data services (Metro Ethernet, SHDSL) Increase DSL penetration to 20% of fixed-lines by 2010 Introduce higher speed DSL services Introduce enterprize VoIP products (IP Centrex, IP contact centers, PBX Connect, IP PBX) Increase VPN market penetration (VPN Supreme, Easy VPN)
Slide 19: ISP related services
Enhance current ISP (core system upgrade, integrated billing, automated value added services) PC Bundles and other lifestyle enabling packages Introduce rich media content (IPTV, VOD) Introduce Triple play services Grow IT capability Organic IT growth IT Acquisition Expand wholesale (SAIX) internet
Slide 20: Fixed-mobile opportunities
Leverage WiFi and WiMax voice portability opportunity Dual mode handsets Wireless home Vodacom synergies (e.g. Call Centre cross selling, Single Bill) Key strategies Fixed-mobile opportunities
Slide 21: Promote increased network usage
New enhanced voice services (Voice of Broadband, Enhanced Voice Mail, Web/Audio Conferencing) Calling plans and bundles that promote fixed line usage i.e.Telkom Closer Grow ISP usage Aggressive broadband growth Introduce customer self service options Market benefits of fixed line products (value pro
Slide 22: Grow selected markets and maximise revenue
Introduce facilities based services, i.e. Telehousing, co-location and connectivity Global IP VPN interconnection Grow hubbing of international traffic Grow international call center services Grow clearing house revenues Key strategies Grow selected markets and maximise revenue
Slide 23: Growth opportunity: Africa expansion
Growth opportunity: Africa expansion Internationally stringent investment criteria Focus on countries and businesses where Telkom can add value and make financial sense Geographic focus: Sub-Saharan Africa Business focus: Fixed and mobile, data and voice Fixed only if with exclusivity of a period of
Slide 24: Growth opportunity: ICT sector
Become an ICT player serving enterprise customers, rather than a low-cost provider Benefit from growing ICT business Enhance skills and customer relationships in: Data Centre Operations (DCO) Customer Premises Operations (CPO) Acquisitions Growth opportunity: ICT sector
Slide 25: Growth opportunity: DSL
Natural area for growth and underdeveloped in SA (SA BB penetration is very low vs. developing countries with similar GDP p/capita) Focus on channels, price and speed to drive penetration Customer segmentation strategy Automatic validation and promoting self installations 20% of fixed-line penetrati
Slide 26: Customer centricity
Customer centricity Reuben September Reuben September Chief Operating Officer
Slide 27: SAS Index
SAS Index™ Telecom 2005 - Ranking Gap between actual performance and industry average = 8.5%
Slide 28: Customer centricity
Customer centricity Achieve a statistically significant improvement in the SA customer survey index performance year - on - year SA customer satisfaction index results Telkom annual CSM (overall quality) Customer service fulfillment index Customer service assurance index Develop a customer centric c
Slide 29: Customer centricity strategy
Customer centricity strategy
Slide 30: Pricing
Pricing Source: Annual CSM 2005/6 and SACSI 2005 Satisfaction drivers Competitive comparable tariff packages Quality of billing (accuracy and timeliness of bills) Perceived level of Telkom prices for local calls national calls line rental data
Slide 31: Pricing initiatives
Pricing Initiatives Pricing strategy impacted by regulatory filings Continuous review of broadband prices Rebalancing of tariffs Moving from minutes of use to annuity based e.g. Telkom Closer Value based packages and bundles e.g Telkom Closer. Improving the quality of the billing system Validation o
Slide 32: Products and services
Products and services Satisfaction drivers Communication sufficient knowledge of products and services Availability of products and services where and when required Reliability of products and services Appropriate range of products and services Adding value to customer lifestyle and meeting business
Slide 33: Products and services: broadband initiatives
Products and services Initiatives Broadband Innovative bundling, branding and positioning of broadband access and value added services and products Increased focus on younger market Bundling of access, fast internet and home gateway (internet, VoIP and later TV) to provide complete one stop triple p
Slide 34: Products and services: VAS, CPE, ISP, IT services
Products and services Initiatives VAS and CPE Improve awareness for Telkom VAS and CPE. ISP Implement a consolidated interface (EvolutionWare) for customers and commercial centres on Telkom Internet This will enable customer self-provisioning, self-administrating services and automated activation pr
Slide 35: Brand
Brand Satisfaction drivers To what extent does the Telkom brand personify Telkom as Efficient Knowing customer needs Reliable Highly respected Professional Really cares about its customers Initiatives Increased visibility Telkom Brand drivers – Value, Quality, Price Transformation into a single Serv
Slide 36: Communication
Communication Satisfaction drivers Keeping the customer informed regarding Telkom in general Telkom’s track record in delivering on advertising promises Keeping the customer informed regarding Telkom products and services Keeping the customer informed regarding communication technology Keeping the c
Slide 37: Customer interface
Customer interface Satisfaction drivers Length of time in queue Knowledge, skills, competencies Time taken to attend Initiatives Resources to accommodate peaks and valleys and new outlets Extended business hours as market requires Distribution, accessibility and location of outlets Best practice tra
Slide 38: Network
Network Satisfaction drivers Time taken to install order / repair fault Ability to deliver quality work Attitude and courtesy of technician Communication of progress Initiatives Fulfillment Initiatives Network pre-provisioning Pre-fulfillment Self install Pro-active customer communication (appointme
Slide 39: Employees
Employees Satisfaction drivers Access to the right person Willingness to go the extra mile Quality of feedback received Respond to requests in a reasonable time Employee related initiatives to improve customer satisfaction People Re-align staff for best-fit Revise rewards and recognition with an emp
Slide 40: Next generation networks
Next generation networks Pierre Marais Pierre Marais Managing Executive: Network Infrastructure Provisioning
Slide 41: Key drivers
Key drivers Lifestyles Technology revolution Customer service demands Regulation Changing Business Models Service customisation Efficiencies Flexibility Rapid deployment of new services Customer self help / configuration Cost reduction New services
Slide 42: The NGN opportunity
The NGN opportunity Video on demand IPTV Web conferencing Video conferencing Multiparty calling Interoperability between various media creates new user experience Conferencing anytime at minimum costs through flexible administration of bandwidth Multimedia Voice service 5 nine reliability Caller ID
Slide 43: What is an NGN: the ITU/ATIS definition
What is an NGN: the ITU/ATIS definition Packet-based transfer Separation of control functions among bearer capabilities, call/session, and application/ service Decoupling of service provision from network, and provision of open interfaces Support for a wide range of services , applications and mecha
Slide 44: Primary product domains and services enabled by NGN
Primary product domains & services enabled by NGN Converged IP Services
Slide 45: NGN challenges
NGN challenges Plethora of enabling technologies Obsolete technologies OSS, BSS and Network Management Systems NGN Services Cost of implementation & migration Skills No implementation blue print, each case is unique
Slide 46: South African hype curve of technology
South African hype curve of technology Less than 2 years 2 to 5 years 5 to 10 years More than 10 years Here today Note: Telkom acknowledges that the hype curve is intellectual property of Gartner Plateau of productivity Slope of enlightenment Trough of disillusionment Peak of inflated expectations T
Slide 47: South African hype curve of service offerings
South African hype curve of service offerings Less than 2 years 2 to 5 years 5 to 10 years More than 10 years Here today Note: Telkom acknowledges that the hype curve is intellectual property of Gartner Plateau of productivity Slope of enlightenment Trough of disillusionment Peak of inflated expecta
Slide 48: Convergence occurs primarily on layers
Convergence occurs primarily on 3 layers
Slide 49: IP makes convergence happen
IP makes convergence happen Single sign-on Access Agnostic Simplified Converged Applications … Unified data & customer view All IP full service architecture Technologies facilitating inter-working AToM WiFi-SIP UMA GMPLS IP QoS VPN’s USER DEVICE SESSION APPLICATION SUPPORT SYSTEMS NETWORK TECHNOLOGY
Slide 50: Current network architecture
Remote Worker Enterprise Residential DSL IP Network Ethernet Current 2009 Wireline Physical Aggregation Integrated & Intelligent High Speed, Service Agnostic Small Office Service Enablers WiFi Satellite NGSDH & Metro WDM Wireless NGSDH & DWDM Core Customer OSS Hosting Security IN NIVR ESP Soft-switc
Slide 51: Application Capable Full Service Architecture
By 2010 Application Capable Full Service Architecture Remote Worker Enterprise Residential DSL IP Network Ethernet Wireline Physical Aggregation Integrated & Intelligent High Speed, Service Agnostic Small Office Service Enablers WiFi Satellite NGSDH & Metro WDM Wireless NGSDH & DWDM Core Customer OS
Slide 52: Evolution to a next generation network
Evolution to a next generation network Strategy Evolutionary approach through incremental roll-out of NGN Introduce NGN capacity Replacement of legacy networks through: Platform optimisation and reduction Complete replacement of high cost & out-of-life networks Objectives and 2010 goals Attain an IC
Slide 53: Stakeholder management
Stakeholder management Mandla Ngcobo Mandla Ngcobo Chief Corporate Affairs
Slide 54: Stakeholder management framework
Implement a coherent framework to reposition Telkom’s stakeholder management in order to create healthy relationships & improve Telkom’s reputation We aim to improve stakeholder management & effectively manage stakeholder risk, with specific emphasis on regulatory risk Stakeholder engagement Improve
Slide 55: Analysis and management of stakeholders
Analysis & management of stakeholders Position What is the individual stakeholder’s stated preferred position on the issue? Salience How important is this issue to the stakeholder, relative to other issues they may be facing? Influence How influential is this individual stakeholder in shaping the ex
Slide 56: Levels of regulatory quantification
Level of quantification Analysis required Objectives Quantification of issues to enable informed, fact-based discussion High-level impact assessment Identify key regulatory levers Quantify impact on Telkom revenue Prioritise regulatory issues Identify overall threat to Telkom Granular regulatory qua
Slide 57: Telkom's approach to regulation
1 2 3 4 Telkom’s approach to regulation centres around four critical steps Understand stakeholders in detail Negotiate, communicate Develop comprehensive engagement plans Rigorously quantify financial impact
Slide 58: Activities and capabilities
Activities Capabilities Expanding current regulatory functions and capabilities Regulatory economics Financial modelling for Telkom Competitors Stakeholder management Identify relevant stakeholders Rigorous mapping of stakeholders Develop engagement plans Legal & regulatory operations Identify regul
Slide 59: Employee engagement
Employee engagement Charlotte Mokoena “Unleashing our People’s potential… …Unlocking Value” Charlotte Mokoena Group Executive: Human Resources
Slide 60: HR's value proposition
Profitability Customers Employees Leadership HR’s value proposition Value Creation Organisational Culture Employee Interventions
Slide 61: People profile
People profile Management Source: SAP HR, 31 March 2006 Telkom
Slide 62: Company performance: people
% % Company performance: people Race Gender % ISETT Telkom South Africa Source: Labour Force Survey, Stats SA, Sep’05 Research: ICT Skills needs (March 2005) SAP HR, 31 March 2006
Slide 63: Qualifications
% % Qualifications Telkom South Africa ISETT Source: Labour Force Survey, Stats SA, Sep’05 Research: ICT Skills needs (March 2005) SAP HR, 31 March 2006
Slide 64: Key people indicators
Key people indicators Succession Planning Executives = 28 of a pool of 91 Executives (31%) Senior Management = 46 of of a pool of 354 Senior Managers (13%) Retention 109 Employees on retention Recruitment 2005/6 = 686 new employee (2.5%) 5 Year Average = 1.7% Resignation 2005/6 = 827 (3%) Natural At
Slide 65: Strategic deliverables
Strategic deliverables Revitalise staff morale and improve positively engaged employees’ scores from 46% to between 50% and 55% by 2010 Position Telkom as an employer of choice in the ICT labour market, achieving a top 10 grading in Deloitte and Touche’s annual “Best Company to Work For” survey by 2
Slide 66: Critical next steps
Critical next steps Employee Engagement and Employer of Choice Career Management Personal Development Management retraining (Program in Management Excellence) Revitalise Employee Recognition Programme Entrench Company Vision, Values and Strategies through Team Business Dialogues
Slide 67: Performance and Productivity
Performance and Productivity Revise Leadership Behavioural model and entrench through Team Business Dialogues Quarterly measurements via Telkom’s Performance Enhancement Process (PEP) Management of poor performance Revise Reward and Recognition Programme and align to Strategy Headcount Management an
Slide 68: Critical next steps
Critical next steps… Build employee competencies and enhance leadership capability NGN/IP/Broadband Skills Customer Service Skills Quarterly Talent Management Forum and accelerate/refresh leadership development
Slide 69: Key HR enablers: behavioural model
Results driven Focused Delivery Empowering Leadership Inspire our People Change agen Obsessed with Customer Satisfaction Analyzing Customer Needs Key HR enablers (systems) We act with honesty and integrity We are performance driven We will promote an entrepreneurial and innovative spirit We are prou
Slide 70: Key HR enablers: retention programme
Key HR enablers (systems)… The main focus of the Retention Programme is to retain critical skills in key areas of the business where there is a shortage of critical skills Restraint of Trade Skills Transfer Up-front payment of retention incentive Three Pillars of the Retention Programme
Slide 71: Talent management
Executive Leadership Telkom Workforce Solid Workforce Executive Leadership Management Operational Staff Manage poor performance Defining Talent Management Top Talent Management (1 – 2% of Workforce) Management Operational Staff Global & Business Talent Development Critical Skills Retention Programme
Slide 72: Optimal placement of talent
O p e r a t i o n s S p e c i a l i s t , m i d - m a n a g e m e n t S e n i o r s p e c i a l i s t / s e n i o r m a n a g e r E x e c u t i v e , M a n a g i n g / G r o u p e x e c u t i v e P u r e s t r a t e g i s t , i n d u s t r y v i a b i l i t y O p e r a t i o n s S p e c i a l i s t
Slide 73: Young talent development
Young talent development We develop Young ICT Leaders who: Have a Global Perspective Have the ability to Explore Telkom’s Future Business Opportunities Can contribute to Company Performance Pursue a Customer Centric Corporate Culture Are able to energise employees to full engagement Can build Telkom
Slide 74: Customer Centricity
Customer Centricity Employee Engagement & Employer of Choice Build employee competencies and enhance leadership capability The people through which Customer Service is delivered The way in which both top management and frontline leadership create an environment within which employees deliver Custome
Slide 75: Transformation: Key enablers
Transformation: Key enablers Introduce a Company-wide Customer Centric Corporate Culture Focus on customer-facing staff Review organisation and work design to support and enable customer centricity Align Reward and Recognition programme to Customer Centricity Re-profile customer facing staff
Slide 76: In conclusion
In conclusion We are focusing on: Improving our employee engagement and becoming an employer of choice Improving our Performance and Productivity Building our employee competencies and enhancing our leadership capabilities Transformation towards a Customer Centric Corporate Culture
Slide 77: Fuel for growth through cost management
Fuel for growth through cost management Kaushik Patel Kaushik Patel Chief Financial Officer
Slide 78: Cost management strategy
Cost management strategy Operating expenditure excluding commitments increases below inflation This is to be achieved through a number of initiatives: Identify non-core services with the aim of streamlining or outsourcing to eliminate inefficiencies Implementing a capital investment plan to ensure s
Slide 79: Operating expenses
Operating expenses Increased OPEX to ensure long - term sustainability & position Telkom for growth Initially due to the implementation of customer centricity strategy Acceleration of NGN requiring simultaneous maintenance of legacy during phasing out Increased support/maintenance for legacy network
Slide 80: Employee expenses
Employee expenses Employee expenses will be impacted by: Telkom Conditional Share Plan Dual network Contractual arrangements for NGN Selling, general and admin expenses Implementation of customer centricity strategy with improved MTTI/MTTR and improved OSS and call centre responses Acceleration of N
Slide 81: Services rendered
Services rendered Property optimisation, management initiatives to renegotiate savings on major contracts and sale of under utilised properties will decrease expenses Payments to other operators Relative to revenue Operating leases Higher initial expenses due to rebranding of fleet, higher vehicle u
Slide 82: Capital expenditure
Capital expenditure Capex of R30 billion over 5 years. 50% of capex on NGN and customer centricity (mainly NGN) Expected to deliver satisfactory returns Returns are derived from revenue improvement, cost reductions, savings and protection benefits Level of investment target : 18-22% capex to revenue
Slide 83: Outlook
Outlook Employee expenses to revenue: 20% – 22% EBITDA margin: 37% – 40% Capex to revenue: 18% – 22% Debt to equity ratio: 50% – 70%